Do you know how much it would cost to rebuild your home? How would you calculate it? Perhaps you would make the mistake of some homeowners who base their insurance valuation on the past or current market value rather than the actual cost of reconstruction.
Fortunately, the task of estimating the likely cost of reconstruction is made much easier by using a rebuild cost calculator – such as the Building Cost Information Service (BCIS). The estimate is frequently used to calculate the sum insured of buildings insurance.
Bear in mind, however, that these online calculators are capable of providing realistic estimates only. The actual costs may vary, and the calculator may not be suitable for every property.
What is a rebuild cost?
The rebuild cost is an estimate of what it would cost to completely reconstruct a property from scratch following a major incident such as fire, flooding, or subsidence. The BCIS rebuild cost calculator is a good example for arriving at such an estimate.
Many elements go into any rebuild cost calculator. These may include estimates for:
- demolition of the remaining structure and clearance of the site;
- building labour and construction materials;
- professional fees – such as those for architects, surveyors, engineers, and solicitors;
- compliance with current building regulations; and
- rebuilding garages, walls, driveways, and outbuildings, if covered by insurance.
Against this background, it may be seen that the rebuilding cost of a house is neither the price you paid for the property nor its current market value. Indeed, because the estimate excludes the value of the land, the rebuild cost may be lower than the market value.
If the property is an unusual construction, a listed building, or built to an especially high specification, the cost of rebuilding may be higher than the market value.
Why rebuild cost matters for buildings insurance
If you ask how much should I insure my house for, the rebuild cost may often be the most important consideration because buildings insurance is normally based on an estimate of the rebuild cost. Your insurer will use this as a basis for the level of cover and not the property’s market value.
If the rebuild cost is pitched too low, your property may be underinsured. That is to say, the maximum settlement you may expect from any claim is less than the cost of repairing, reinstating, or rebuilding your home. This may present a considerable financial problem – and not just in the case of the need to rebuild.
Some insurers may apply what is known as an “average clause”. This means that if your property is insured for less than its actual rebuild cost, the insurer may reduce any payout in the same proportion.
By way of example, if the actual rebuild cost is £400,000 but the total building sum insured in your policy is only £300,000, the property is insured for only 75% of its true value. If you then make a claim for, say, £100,000 worth of damage, using the average clause, your insurer may pay out a settlement of only £75,000.
Please note that the above is a hypothetical example only and is provided for illustrative purposes. Actual rebuilding costs, insurance premiums, cover levels, terms, conditions, exclusions, and claim settlements will vary depending on individual circumstances, the property concerned, and the insurer selected.
How much should I insure my house for?
One of the most common questions homeowners may ask is how much they should insure their home for.
The answer is that buildings insurance is typically based on the estimated cost of rebuilding your property, rather than its market value, purchase price, or the amount outstanding on your mortgage.
The rebuild cost aims to reflect what it may cost to demolish and clear the site, source materials, pay contractors and professional fees, and reconstruct the property following a major insured event such as a fire, flood, or subsidence claim.
If the sum insured is set too low, there is a risk that the property could be underinsured.
You may wish to use a recognised rebuild cost calculator as a starting point. However, for listed buildings, period homes, non-standard construction properties, or high-value homes, a professional valuation may provide a more accurate assessment.
If you are unsure whether your current buildings insurance sum insured remains appropriate, it may be worth reviewing your rebuild cost and hiring a chartered surveyor to carry out a professional assessment.
How a house rebuild cost calculator works
As mentioned, a house rebuild cost calculator is a tool designed to estimate how much it would cost to rebuild a property from the ground up if it were completely destroyed.
Different calculators may require different details, but they typically include:
- the type of property – detached, semi-detached, terraced house, bungalow, or flat;
- number of bedrooms;
- floor area or square metre size;
- age of the property;
- construction type;
- postcode or location;
- presence of garages or outbuildings; and
- listed status or unusual features.
The calculator then compares these details with the latest UK construction cost data.
Construction costs may vary considerably across the country. The price of materials, labour rates, accessibility, and local demand for the relevant tradesmen may all affect costs regionally. Rebuilding in central London, for instance, may be higher than in many rural locations. Once again, the complexity of the home’s construction or its listed status may also affect the rebuild costs.
It is worth reiterating that any house rebuild cost calculator provides an estimate only. The estimate is only as good as the information fed into the calculator. The accuracy of the information provided may determine the reliability of the estimate.
What information should you have before using a rebuild cost calculator?
Before using any online rebuild cost calculator, it may help to gather as much accurate information about your property as possible. The quality of the estimate is often influenced by the quality of the information entered.
You may want to check the property’s floor area, the number of bedrooms, the age of the building, and whether there have been any extensions, loft conversions, garage conversions, or major structural alterations. If you have copies of planning permissions, building regulations approvals, or survey reports, these may also prove useful.
Property owners sometimes overlook detached garages, garden rooms, workshops, home offices, retaining walls, gates, driveways, and other permanent structures.
Depending on the terms and conditions of the policy, some of these features may need to be included when calculating the total buildings sum insured.
For older properties, listed buildings, and homes built using non-standard materials, it may be particularly important to ensure that any unique features are considered, or specialist advice sought. Specialist stonework, timber framing, decorative features, heritage materials, and traditional construction methods may all influence rebuilding costs.
When a rebuild cost calculator may not be suitable
While an online rebuild cost calculator is a useful tool, it may not be suitable for every type of property – especially those that are more complex or unusual.
The tool’s estimates are likely to be less reliable, therefore, when assessing the rebuild costs of:
- listed buildings;
- thatched properties;
- stone-built homes;
- period homes;
- architect-designed, unusual, or non-standard construction houses;
- timber-framed homes;
- concrete and steel-framed houses; and
- large or high-value properties.
To return properties such as these to their original state following a major event, greater care and expertise may be needed. Specialist materials might be required, rarely used or traditional construction methods may be called for, and skilled craftspeople and tradesmen may need to be employed.
These are all considerations and complexities that a standard house rebuild cost calculator is unlikely to handle. Instead, you may want to consider a professional rebuilding survey and valuation.
How inflation and supply chain issues can affect rebuilding costs
Rebuilding costs do not remain static. Construction inflation, labour shortages, changes in building regulations, and fluctuations in material prices may all affect the cost of reconstruction over time.
In recent years, many homeowners and landlords have experienced significant increases in the cost of building materials, including timber, steel, bricks, insulation products, roofing materials, and specialist components. Labour costs may also increase where there is strong demand for skilled tradespeople.
As a result, a rebuild cost estimate that appeared appropriate several years ago may no longer accurately reflect current reconstruction costs. This is one reason why many property owners choose to review their buildings insurance regularly and check that the building sum insured continues to reflect their circumstances.
It is important to remember that a rebuild cost calculator provides an estimate only and does not guarantee the amount an insurer would pay in the event of a claim. Cover, limits, exclusions, terms, conditions, and settlement calculations will vary between insurers and policies.
Rebuild costs for landlords and homeowners
The buildings insurance rebuild cost is important for both homeowners and landlords. In one case, it protects the home in which you live and in the other, it safeguards a prime business asset.
Buildings insurance for the homeowner relies on an accurate and up-to-date estimate of rebuild costs for the main residence, permanent fixtures and fittings, and any outbuildings. The total building sum insured, of course, may need to be revised following extensions or other improvements to the home. Underestimate the rebuild cost, and you may find yourself underinsured.
Calculating the rebuild cost for rental property may be more complicated – although it still centres on reconstruction of the building itself and not the rental income or its investment value.
Factors such as property conversions, multiple occupancy arrangements, and mixed-use elements may also influence rebuilding considerations.
How often should you review your rebuild cost?
In this fast-moving world, things can change rapidly. Prices may shoot up almost overnight, and the availability of builders and other tradesmen may fluctuate widely. Changes in construction costs, of course, affect the estimate of the rebuilding cost of a house.
Although circumstances may dictate a different pattern, you may want to review your rebuild cost at least once a year – and the annual renewal of your sum insured buildings insurance offers a golden opportunity to do just that.
Some insurers may index-link the rebuild estimate on which your buildings policy is based. This automatically increases the building sum insured each year according to any inflation in building costs.
Index linking may be useful in maintaining your insurance cover but beware that it may not accurately reflect big increases in local building costs, changes in the supply of specialist building materials, or renovations, extensions, or other improvements you have made to your home.
Common mistakes property owners make
Although buildings insurance rebuild costs are critical for both homeowners and landlords, mistakes and misunderstandings may be made. The more common of these are to use:
- the purchase price;
- the outstanding mortgage balance;
- an estimate of current market value;
- guessing the rebuild costs;
- failing to review and update rebuild costs after improvements or other building works; and
- relying on outdated figures and failing to review and update at least once a year.
Getting advice about buildings insurance
While an online tool such as the BCIS rebuild cost calculator may be useful, a professional may help to ensure that the unique features of your property are accurately reflected in the estimated rebuilding costs.
The advice and guidance may help to ensure that the total building sum insured and estimated rebuild costs remain appropriate. Indeed, in the case of some properties – such as listed buildings, or those of non-standard construction, or especially high specification – a professional valuation may be particularly appropriate.
Professional advice may also prove valuable in understanding your property insurance policy terms, conditions, and limits.
