Rising construction costs means your property may now be underinsured
Rising construction costs are creating a worrying scenario for UK properties and premises. With the sustained increase in the cost of building materials and overall construction costs, there is a real likelihood that many UK buildings are now underinsured.
Recent figures from RebuildCostASSESSMENT.com revealed that just 68% of properties in Britain were covered for the correct amount, with around 32% underinsured. Now, with rebuild costs rising rapidly, this figure looks set to increase dramatically as more properties become underinsured.
RebuildCostASSESSMENT.com director, Will Molland MCIOB AssocRICS, explains the circumstances driving the market: “The main factors at play here are pent up demand following Covid lockdowns and the re-starting of postponed building projects, as well as the impact of Brexit on imports from the EU.
“The loss of around 1.5 million foreign workers throughout 2020 and 2021, many from construction, together with increased demand in other countries for construction materials, such as high Chinese demand for steel, and extended lead times for virtually all materials, have combined to create a perfect storm around rebuilding costs.”
All building costs increasing
The Builders Merchants Federation (BMF) reports that prices for products and materials have gone up by 10% - 15% this year, with some specific products even higher. Timber, for example, has gone up by 50% and oriented strand board (OSB) and other sheet materials as much as 100%. All are key house building components.
According to the Office for National Statistics (ONS), the cost of materials rose by 20% between July 2020 and July 2021. The RICS’ BCIS general building cost index forecasts the general building cost index to be 8.8% for the year up to September. That’s up from 3.6% for the year to March 2021.
Huge potential for underinsurance
Where a building sum has been on the low side, rising construction costs mean the potential for underinsurance has now increased dramatically, with some properties in the retail sector, particularly High Net Worth and listed properties, especially vulnerable to higher rates of build cost inflation.
When calculating rebuild costs for HNW homes, multiple data sources are analysed, including cost plans from building contractors and adjustments made for current increases. Will Molland says: “It is unlikely that annual indexation will have allowed for these increases, and it is expected that general building cost inflation at this level will inevitably hide a range of increases.”
The message is simple: with the recent and ongoing rise in construction costs, your property or premises may now be underinsured against rebuild costs. If you think you may be affected, it’s vitally important to ensure you have adequate insurance in place. To discuss your property insurance, whether home or business, please give call us on 01992 703 000 or email: insurance@mcdonaghs.co.uk