Guide

When do I need buildings insurance: exchange or completion?

This is one of those questions where the answer surprises almost every first-time buyer. The instinct is to think that you need buildings insurance when the property becomes yours, on completion day. The correct answer is earlier than that: from the point of exchange.

Here is why, and what you need to do about it.

What is the difference between exchange and completion?

Exchange of contracts and completion are two distinct stages in the property buying process, separated by a gap that is typically one to four weeks.

Exchange is the legal moment at which both buyer and seller become contractually committed to the transaction. Before exchange, either party can pull out without legal penalty (though money already spent on solicitors and surveys is lost). After exchange, walking away means breaching a legal contract and facing financial consequences.

At exchange, you pay your deposit (usually 10% of the purchase price) to your solicitor. This money is at risk if you pull out after exchange.

Completion is the day the remaining funds transfer, legal ownership passes to you, and you receive your keys. This is the day most people think of as "moving in day."

Why does the risk shift at exchange?

Between exchange and completion, the property is in an interesting legal position. You do not yet own it: legal ownership still rests with the seller. But your contract commits you to buying it, regardless of what happens to it during that gap.

This means that if the property were flooded, damaged by fire, or otherwise significantly harmed between exchange and completion, you would in most cases still be legally required to complete the purchase. You are buying the property as it is on completion day, and if it has been damaged in the interim, that is your problem.

Without buildings insurance in place from exchange, you have no means of recovering the cost of that damage. You could complete on a flood-damaged or fire-damaged property with no financial protection whatsoever.

This is the reason why buildings insurance must be arranged before exchange, not completion.

What does your solicitor say?

Your solicitor should remind you to arrange buildings insurance before exchange and will typically ask you to confirm it is in place before they proceed. If they do not raise it explicitly, raise it yourself.

Your mortgage lender will also require evidence of buildings insurance as part of the completion process. They want to know that their security (your property) is insured before they release the funds.

Do not leave the insurance conversation until the week before completion. By the time exchange is approaching, you should already have a policy in place or ready to activate from the exchange date.

How to arrange it

Arranging buildings insurance is straightforward. You can go directly to an insurer or use a comparison site to find a policy. The key pieces of information you need are:

• The rebuild value of the property. This is not the purchase price or the market value: it is the cost of demolishing and rebuilding the property from scratch. A rebuild cost calculator is available through the Association of British Insurers and through most major insurers. If your property is unusual or complex, a surveyor can provide a formal rebuild cost assessment.
• Your exchange and completion dates. Most policies allow you to set a start date, which should be your exchange date. You pay from exchange, not from when you reserved the policy.
• Basic details about the property. The type of construction, the age of the building, and any features that might affect the risk assessment, such as a thatched roof, a history of flooding in the area, or proximity to trees.

Does your lender choose the insurer?

No. You are free to choose any buildings insurance provider whose policy meets your lender's minimum requirements. Your lender may offer their own product, but you are under no obligation to use it.

Shop around. The difference in price between providers for equivalent cover can be significant, and the cheapest policy is not always the best. Check what is and is not covered before you commit.

Once you have arranged your policy, you will typically provide the policy number and insurer details to your solicitor and lender. Some lenders ask for a copy of the policy schedule.

What if the property is a new build?

If you are buying a new build property that is not yet complete, the developer's own insurance typically covers the building during construction. You will need to arrange your own buildings insurance from the point of exchange on the completed property, or from handover if that is the process your developer uses.

Confirm with your solicitor and the developer exactly when your buildings insurance obligation begins. New build purchases can have slightly different timelines, and it is important to know the specific point at which the risk passes to you.

The short version

Buildings insurance must be in place from the point of exchange, not completion. Between exchange and completion, the risk of damage to the property sits with you as the buyer, even though legal ownership has not yet transferred. If the property is damaged in this gap and you have no insurance, you are exposed.

Arrange your policy before exchange and set its start date to your exchange date. Your solicitor will ask you to confirm it is in place, and your lender will require evidence before releasing funds.

You choose the insurer. You are not required to use your lender's product. Shop around for the best cover at the best price, and make sure the sum insured reflects the actual rebuild cost of the property.

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This article is for informational purposes only and does not constitute financial or insurance advice. Always speak to a qualified adviser before making decisions about protection or insurance products.