Bank requesting insured building value set back to '05 level

I renewed my house insurance last month, and reduced the stated building value based on a professional assessment of the rebuild cost in the current climate. I have a mortgage with BOI on this property since 2005. Yesterday I received a letter from the bank stating that they received the house insurance schedule from my insurer and I must restore the value insured to be what it was when the loan was originally issued in 2005. The rebuild cost stated then is even more than the current market value of the property (building + site).
I am going to ring the bank and push back on this, but wanted to get some opinions here first – why should I insure the building for more than it’s worth? Is this even legal? Even if the house burns to the ground tomorrow I’m sure the insurance co. will only pay out the amount required to rebuild.
Perhaps I’m missing something here, but there just seems to be something fundamentally wrong with this! Any thoughts?

How does the insured value relate to the current value of the mortgage?

Check with the insurer first to see what they will pay out. I believe you are right that they will only pay rebuild cost. At least then you will be armed with that information to go to the bank with.

It wouldnt surprise me if the bank is acting as the agent for the insurer, are they under pressure to achieve agreed targets with the insurer in order to get a certain payment (which could be substantial)?
In which case they could be manipulating their customers. :open_mouth: (Now that would be unusual in this country wouldnt it). :sick:

The insured rebuild cost is quite a bit less than the outstanding loan amount. We are in negative equity, current market value of the house is less than the outstanding mortgage balance. I don’t see how the insured value should relate to the mortgage balance, surely the insured value relates to the cost to reinstate the house and nothing else (not what it would have cost to rebuild a house five years ago!).

The most likely explanation.

Couple of questions forty. Where is the property? Is it detached single storey etc.? What’s the approx square footage. What kind of construction eg. Cavity block /timber frame etc.?

This is simple extortion… resist :sick:

They’ll only pay out the value of a rebuild at current rates, the price of the land is never included,and your mortgage has an amount embedded for it.

You’re absolutely right. This all comes down to the principle of indemnity which is one of the fundamental principles of insurance and applies to property insurance. Basically an insurance co will not pay out any more than the rebuild cost.

So there is absolutely no value for you or the bank in having a property insured for any more than its actually worth.

I wonder where demolition cost fits into all of this?

In effect, you were telling your bank that its collateral is actually worth less. When the point in time arrives where the bank needs to pass on its loans gone bad to the Irish government or the ECB, it will want to have documentation there that will enable payment of the highest amount possible.

What can the bank do if you refuse?

I think roc has hit the nail on the head there. Tell the bank to fuck off. They’re basically asking you to pay extra for nothing. Why don’t they just raise your rate if they want to gouge you in the traditional manner?

Nail head

Any developments?

Thanks all for the comments and advice. Just off the phone with the BOI Customer Relations Unit and I was basically told I have two options

  1. Over insure the property keeping the reinstatement value at what it was in 2005
  2. Get one of the BOI accepted valuers in my area to revalue the property (at my own expense) and resubmit the revised reinstatement value to the bank.

The valuation cost for option 2 would be a lot more than any increase in premium for option 1, so I can see that typically people in my situation would just accept this and over-insure their property. I questioned why they would not automatically accept reductions in line with the figures published by the Society of Chartered Surveyors, to which the response was the bank are not qualified to value properties and can only accept official valuations. I also asked if the bank would pay for the revaluation - I got a quick answer, No :wink: So they have me between a rock and a hard place at the moment.

There is always option 3 – do nothing and see what happens next. I did ask what the repercussions would be if I don’t revise the insured value – I didn’t get a convincing answer, something like the property wouldn’t be fully insured…yada, yada… but it all sounded unconvincing. All the same, I don’t want to mess around with the bank too much in case it breaks the T&Cs of the loan and somehow jeopardises my tracker mortgage.

If it were me I’d consider it time to get the financial regulator involved, I would contact the FIN Reg looking for information and advise them of the case, I would then contact the bank and advise them that I have contacted the Fin Regulator about this extortion and will be insuring the property for the lower amount but will be happy to adjust it upward if the Fin Regulator finds that I am wrong. But if I am right I’ll advise the bank I may consider sueing for damages and passing the details to the media of how they tried to extort money from me.

I would refuse, what can the bank do.

Tell the bank to give you free banking for life if you agree to change the value back. That way you win in the long run and they get their way.

surely the bank only require the reinstatment cost not the value??

what has the value to do with anything?

if your tracker was linked to ltv (nib style), could this be a ploy to start the wheels in motion to show your ltv is now too high and so increase your tracker margin?

or possibly im just paranoid!

They can legitimately claim you are in breach of the T & C of your mortgage contract (which almost certainly states that you are obliged to insure the house for the rebuild cost stated in the valuation report undertaken at the time you took out the mortgage)

They then can withdraw from their side of the contract - i.e. your tracker rate

Assuming that your tracker is ECB plus 1.5 or below, you then are forced to get a new mortgage on a fixed or a standard variable rate, costing you probably tens of thousands over the lifetime of your mortgage

There was a detailed discussion of this issue on www.askaboutmoney.com - have a look before you continue to fight with your bank. I suspect they are rubbing their hands in glee at the prospect of you unsuspectingly walking into a trap that will benefit them and only them.

I decided to pay the additional 150 euros it cost me to insure my house for the 2007 rebuild cost over the current rebuild cost given my tracker is saving me approximately 300 euro a month compared to the standard variable offered by my lender and I have over 200 monthly payments to go. My view is that anyone with a tracker should do whatever necessary to keep it