If "we" own the house outright, such a decision is ours to make. But most "homeowners" have a mortgage, and the mortgage provider wants very much to cover their backside, which they see as meaning that in the event of a total loss, a property with no less than the existing one's full resale value will appear in place of the smoking heap. (They would, I presume, argue that even if the outstanding mortgage was only, say,
30% of that value, their lending criteria had given that mortgage on the basis of covering a particular proportion of the purchase cost, and you'd be nadgering their carefully-constructed risk-of-nonrepayment profile if you put up a yurt in place of the elegant Georgian pile. Though if they got their outstanding mortgage repaid, I don't see it's any business of theirs what your future housing derangements might be...)
"Set Square" wrote | Phil Addison wrote: | > The risk you are insuring yourself against is that of needing | > to be re-housed.
No, because the council have a statutory obligation to provide you with housing eg after a fire. The risk is that of having to rebuild the house to soemthing like it was in accordance with current regs.
| The analogy doesn't quite work - because there are no scrapyards for | crashed houses. | AIUI you wouldn't be allowed by your local authority simply to abandon a | wrecked house and move on. Would you be happy if your next door neighbour | did that?
In many parts of the country, detached properties are probably in the minority, with semis or flats being more common. The obligations under Scottish law to provide support for adjoining houses within a building can be traced back to Roman law.
Well, I'm sure that you would be able to hunt around and find someone who _is_ prepared to insure on such a basis, but it'll most probably be a bespoke policy, and very expensive.
Why?
Well, one answer is "it's not the normal way that the industry operates", but that in itself is not a satisfactory answer - "it's the most efficient way for a basis of cover" would be slightly better. The industry is such (in recent years) that if the basis you propose is considerably more attractive then some company would be offering it. Insurance is a very competitive industry.
I can think of many reasons why this would be the case, but the basic one comes down to certainty - the insurance underwriter will want to be as sure as possible that they can predict the likely costs that would be incurred for a pay-out, and armed with that information along with the probability of payout occurring that are able to set a premium that enables them to stay in business.
Rebuild costs are pretty well defined - for a certain size, quality, type and location of a building it is possible to predict what cost of clearance and construction will be. Only public projects and tv-inspired amatuer property developer projects seem to go routinely awry.
Time taken to rebuild can also be pretty well predicted, therefore temporary rehousing costs can be determined.
Therefore you've got a pretty strong basis for determining a premium.
If you were to go down the route of payout enabling you to buy a new, equivalent house, then things get horribly complicated and costs uncertain, not the least because it could be very difficult to agree on what an "equivalent house" might be (ok, easier in the case of a standard modern estate house, or a terraced victorian house). Slightly different location? Less desirable street, and you'd feel cheated. More desireable street and you've broken a fundamental rule of insurance in that the insured should not profit from the peril. the time taken to find a new place is by no means well defined, so rehousing cost are essentially an uncapped liability for the insurance co.
Upon purchase of the new house then title needs to be transferred to you, and the title for your old "house" (now possibly a condemned shell) passes to the insurance company, and they woudl be liable for all risks that go with it, along with sorting out the legal process for transfer, transfering the mortgage to the new house, etc.
More importantly, they now have an asset on their books to dispose of, and costs of that disposal are very uncertain. In times of rising markets they may profit from the land sale, but in times of static or shrinking markets, the value of this asset might diminish. They'd have to pay for asset revaluations for audit purposes, etc, so it would increase their costs that way as well.
However, I'm currently doing some work for a very large insurance agent, and many of the people I deal with are very knowledgable about the insurance business, so if I get chance in a social moment I'll pose the question and see what they come up with.
It's the transaction that counts, not the location - it's just that the scrap merchant comes to you, in the form of Mr Builder, to take the remnants off your hands.
And how, exactly, would they stop you? They can ask and demand, but I think their only sanction is to compulsorily purchase the wreckage from you. i.e they give you money, just what you might want! Anyway, I wouldn't suggest just leaving the valuable plot to rot. The owner would more likely put it in an estate agent's hands to sell, and it would be his choice whether to clear it first or make an allowance for clearing costs in the sale price.
If he (the owner) is daft enough to want to abandon it, I may be able to buy the deeds from him at a very favourable price!
Ahh.. if that is correct you may have hit on the answer to the question "Why?".
However, I'm still not happy that we are clear about what is meant by "re-building". I suspect it does not mean re-building to look like the original, but merely "building" a modern house on the site with "sympathetic" features. For instance, further up my road the end-terrace house of a Victorian terrace has been rebuilt at some point, in the 70's judging by the style. It is a good 3 meters shorter at the apex than the rest of the terrace that it now abuts due to lower floor/cieling levels and a less steep roof line.
No, they don't care about that, they just want to know their monetary investment is safe. The terms of the mortgage deed give them first call an any insurance payout to clear the outstanding loan - that's why they insist you have insurance.
The insurance company will check if there is a mortgage on the property, or any other "interested party" involved, and would only pay out the balance to the owner, assuming there is actually some positive equity.
I don't see that this impacts on the basic principle I am asking about.
So you would rely on the council to re-house you? I don't think many of us who have struggled to fund our own lives would wish to take that option.
Interesting point. If correct that would mean that some of the payout might have to be set aside to build some form of buttressing to stop the party wall from falling in. Maybe that cost gets shared with the adjoining properties insurers?
Thanks Richard, you are one of the few that have understood the question.
On my scenario it's very straightforward to establish the payout. It is simply an independent valuation of what the house is "worth" on the open market. I'm not sure how that would be reached retrospectively though. If there are a street of similar houses it would not be too hard, but if it's an isolated country house I daresay an insurer would require a recent valuation or the mean of three, so the insurance could be capped if you had skipped that.
Previously in the thread we seem to have widely varying figures, and methods of arriving at them.
No, no... I never suggested you should be re-instated in an equivalent house. I proposed being paid out the value of your current house and being allowed to do what you will with it.
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