Listed building insurance can be complex!

The rebuild value of listed properties Grade I, II* and II, and Grades A, B and C for Scotland, is usually higher than the purchase price. This often catches property owners unaware and can result in a significant number of people being underinsured.

Many insurers don’t want to cover listed buildings; or don’t want to insure them at a certain value; or have increased their prices. It has therefore become increasingly difficult to insure listed buildings accurately; resulting in some listed homeowners unwittingly covering their property at an incorrect level. At Lloyd & Whyte Private Client, we can arrange insurance for your listed property which can financially protect your buildings and contents and remove the stress of finding insurance yourself.

Listed building rebuild cost vs market value

The rebuild value reflects the full cost of reinstating the property in the event of total loss, including specialist materials and skilled craftsmanship. Listed buildings usually require traditional construction techniques and rare or bespoke materials, which are considerably more expensive than modern alternatives. Skilled craftspeople and original building materials can be difficult to find and source, with demand far outweighing supply.

In contrast, the market value (current sale price if you were to put it on the market) of a property is influenced by location, demand, and comparable sales, and may be lower than the true cost of rebuilding your property. This can make it easy to unwittingly insure your listed home for a lower amount than the actual cost of repairing or reinstating your home.

If Listed Building Insurance is arranged based only on the market value, you risk being underinsured, meaning claims settlements may not cover the full cost of rebuilding.

How to avoid underinsurance on a listed property

Getting an accurate figure for how much your property’s rebuild cost, is strongly advised. In fact, the Royal Institute of Chartered Surveyors (RICS) recommend that a rebuild cost assessment should be conducted every three years using the expertise of a qualified, specialist surveyor.¹ The RICS has a search function on their website which can help you find a surveyor near you. This can enable you to arrange for an RICS rebuild cost assessment to be conducted on your property.

Importance of listed building consent

As well as potentially causing issues with insurance, repairing, renovating, or reconstructing also has the potential for causing problems with the authorities, due to your obligation to preserve your property. Listed status means a building is recognised as being of special interest, and any works that could affect its character require Listed Building Consent in addition to normal planning permission.

Local planning authorities (LPAs) can enforce strict rules governing repairs, renovations, and alterations to listed buildings to maintain their historical and architectural significance. This applies not only to external changes but also to internal features, fixtures, and even materials used in the building.

Unauthorised alterations, even minor ones, can lead to enforcement action or criminal prosecution. This can extend to a prison sentence of up to two years, a fine of up to £50,000, or both.² LPAs can also stipulate that unauthorised works are reversed.

Historic England is an organisation that advises the UK government on the protection of England’s historic places, and Historic Environment Scotland (HEC) advises the Scottish government on the same issues, including monuments, battlefields, archaeological sites, and listed buildings. If you would like to find out whether your building(s) is listed, the National Heritage List for England (originating from 1882) can provide you with the relevant information and for Scotland, Historic Environment Scotland is your first port of call.

While Historic England has the jurisdiction to prosecute if unauthorised works are carried out on a listed property, (and HEC can facilitate prosecution alongside the Police and the Crown Office), it is your LPA that is usually responsible for enforcing legal action, with Historic England and HEC providing support and guidance if necessary.

If you are planning to undertake work to your listed property, however minor it may seem to you, please consult your LPA and conservation officer beforehand.

VAT on rebuilds and repairs

When completely rebuilding a house, you will typically find that the costs of ‘materials and labour’ are exempt from VAT, with tax only being payable on other fees such as demolition, site clearance and professional services, e.g. architects. In the event of a repair however, VAT is chargeable on the ‘materials and labour’ as well.

For non-listed properties, the decision to repair a property or to demolish and rebuild it may come down to pure economics, with insurer and homeowner playing a significant part in the outcome. For a listed property, however, there is a duty to repair and preserve, meaning it is possible that a repair may be the enforced course of action, even if the extent of damage is such that a non-listed building may have been demolished. In this scenario, were materials and labour to reach an amount sufficiently high enough, the addition of the VAT may mean the total costs then exceed that of a total rebuild.

For this reason, many insurers will insist that your Buildings sum insured includes VAT on materials and labour as well as demolition, clearance, and professional fees. It is therefore important that you check this with your insurer so that you are aware of your contractual obligations. You should also check the small print of any rebuild valuation you obtain, as these often won’t include VAT on materials and labour.

Are mortgage valuations accurate for listed homes?

Mortgage valuations for listed homes are often not fully accurate, as they focus on market value rather than the higher rebuild cost. While suitable for lending decisions, they may not take into account specialist restoration expenses, heritage restrictions, and unique materials required.

As well as their condition check and value, mortgage companies often provide advice on the rebuild cost. However, with listed homes they may not have the expertise that a specialist surveyor has in valuing listed property rebuilds, which is why (as previously stated) we recommend a RICS surveyor undertakes a professional survey of your home for insurance purposes.

Mortgage companies commonly include insurance clauses within their lending agreements, particularly for listed properties. These clauses require borrowers to maintain suitable levels of insurance cover at all times, ensuring the property is protected against potential risks such as fire, flood, storm damage, or subsidence. Because listed buildings often have higher repair and reinstatement costs, insurers and lenders insist on comprehensive cover that reflects the property’s unique value.

The policy must be sufficient to cover the full reinstatement cost, not just the market value. Lenders may also stipulate that the policy names them as an interested party to protect their financial interest. Failure to maintain adequate coverage could place you, the borrower, in breach of the mortgage terms, potentially leading to default action. Arranging accurate levels of home insurance can be the difference to short and long-term problems and being appropriately protected.

To find out more on how you can safeguard against being underinsured, please contact us today. If you would like to enquire about a new quote for listed property insurance, get in touch.

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Listed building insurance can be complex!

Listed building rebuild cost vs market value