Homeowners could be underinsuring their homes because they are underestimating the amount it would cost to rebuild their home, new research has revealed.
A study by MoneySuperMarket found the average market value of properties in the UK was nearly £80,000 more than the estimated cost of rebuilding the property.
The research, based on thousands of enquiries on the MoneySuperMarket website, showed the average estimated rebuild cost was £211,000 – this is £79,000 less than the average market value of a property (£290,000).
In effect, this means that homes are valued much higher than the bricks and mortar they are actually built from.
The biggest disparities were in London, where the average market value of a property was £555,000 – £300,000 higher than the estimated rebuild cost (£255,000).
Wales and the North East were the only regions of the UK where rebuilding a property costs less than the market value, on average.
However, on the Isle of Lewis in Scotland, the average cost of a property is £102,000 less than the estimated rebuild cost, the biggest negative difference nationwide.
Property age
Properties built before 1950 tended to have higher average market values, estimated rebuild costs and insurance premiums than those built since the turn of the millennium, the study found.
However, properties built between 1950 and 1999 had the lowest market value and are cheapest to rebuild and insure.
Cost and difference between median estimated property rebuild cost and median property market value, by property build year (Source: MoneySuperMarket)
| Year property is built | Median estimated rebuild cost | Median of Property Market Value | Difference | Median Cheapest Insurance Price |
| 2000+ | £205,000 | £295,000 | £90,000 | £139.97 |
| 1950-1999 | £189,000 | £270,000 | £81,000 | £135.52 |
| 1900-1949 | £240,000 | £322,000 | £82,000 | £157.08 |
| Pre-1900 | £267,000 | £320,000 | £53,000 | £176.08 |
Premiums
In terms of home insurance, a higher estimated rebuild cost tends to increase premiums more than a higher market value would, although both can affect policy costs.
Kate Devine, head of home Insurance at MoneySuperMarket, said: “The rebuild cost refers to the amount it would cost in labour and materials to reconstruct the property from the ground up if it was destroyed by a fire, flood or another act of God. It has a significant role in determining home insurance premiums, so if it is over or underestimated, your premiums may end up more expensive than they should be, or it could mean you don’t have the correct level of insurance.
“In order to get the best insurance deal for you, it’s important to have a good understanding of your property’s estimated rebuild cost. There are plenty of online tools available to help calculate an accurate estimate in order to find the best deal on your home insurance.”
To find out more about how this can impact your home insurance and how to get the best deal for you, check out MoneySuperMarket’s guide to estimated rebuild costs.
