The UK mortgage market has taken an awkward turn. After easing earlier in July, fixed mortgage rates began to rise again – even though the Bank of England held Bank Rate at 3.75%.
That may sound like a problem for future homebuyers and anyone coming off a fixed deal. But it also matters if you are reviewing your household budget, renewing your home insurance or trying to keep motor insurance costs under control.
The housing market itself remains subdued. The Bank of England reported that mortgage approvals for house purchase fell by nearly 15% in May and were broadly flat in June. Affordability concerns, higher borrowing costs and economic uncertainty are all encouraging buyers and sellers to tread carefully.
So, while your home insurance premium is not directly set by Bank Rate, this is a good time to review what you are paying and whether your cover still fits your circumstances.
The reversal
On 30 July, the Bank of England confirmed that Bank Rate would remain at 3.75% for a fifth consecutive meeting. Three members of the Monetary Policy Committee voted for an increase to 4%, showing that the outlook remains finely balanced.
Fixed mortgage rates do not simply follow Bank Rate. Lenders also watch swap rates, funding costs, inflation expectations and the wider economic outlook. These market pressures can move even when the Bank is sitting on its hands – metaphorically speaking, of course.
According to figures reported by the BBC, the average new two-year fixed mortgage rate was 5.62% on 30 July. The average five-year fixed rate was 5.66%. Both had risen from earlier levels.
The Bank of England’s July Monetary Policy Report also noted that recent increases in reference rates were beginning to pass through to quoted mortgage rates. It expects higher mortgage costs to weigh on household spending, alongside subdued income growth and wider economic uncertainty.
This does not mean that every mortgage rate will rise, or that a recession is certain. It does mean that waiting for an immediate return to much cheaper borrowing could be optimistic.
Why insurance matters
Home insurance is usually a smaller cost than a mortgage, but household budgets are made up of many smaller costs. When a renewal quote lands higher than expected, it can feel like another washing machine deciding to break at exactly the wrong moment.
Insurance premiums are not directly linked to the Bank of England’s base rate. They are more closely influenced by:
- The cost of building materials and labour
- Repair costs following escape-of-water, storm and subsidence claims
- The replacement cost of household goods
- Local crime and flood risk
- Your claims history
- Your property’s construction, occupancy and security
- The level of excess and cover you choose
That is why home insurance may remain expensive even if Bank Rate eventually falls. Insurers are pricing the risks and claims costs they expect to face – not simply passing on the latest interest-rate decision.
And if your mortgage is taking up more of your monthly budget, it becomes even more worthwhile to check your insurance renewal carefully.
Check the basics
Start by checking that your policy is based on the right information.
Buildings insurance should generally reflect the cost of rebuilding your home, rather than its market value. These are two very different figures. A property may sell for £400,000 but cost considerably less – or more – to rebuild, depending on its size, location, construction and features.
Contents insurance should reflect what it would cost to replace your belongings. It is easy to underestimate this. Add up the contents of your kitchen, bedrooms, loft, garage and shed. Include carpets, curtains, clothing, electrical goods and garden equipment.
You might be surprised how quickly the total rises. A television here, a laptop there and a wardrobe full of clothes can add up to far more than expected.
It is worth using T&R Direct’s home insurance service to review the level of cover available. You can also read the company’s practical advice on what to itemise in your home.
Accurate information may help you avoid paying for cover you do not need. More importantly, it can help reduce the risk of being underinsured when you need to claim.
Review your excess
Your excess is the amount you agree to pay towards a claim. Increasing the voluntary excess can sometimes reduce your premium.
But check the numbers before making a change. If increasing the excess saves £35 a year, but leaves you paying an extra £250 after a claim, it may not be worthwhile.
You should also consider whether you could comfortably afford the excess if something happened. A lower premium is not automatically better if the policy becomes difficult to use.
T&R Direct offers home excess insurance, which may be worth considering if you want additional protection against certain excess costs. As always, check the policy wording, exclusions and eligibility requirements before buying.
Improve your details
Small changes around the home can affect how an insurer views the risk.
Make sure your insurer knows about relevant security measures, such as approved locks, an alarm or a professionally installed security system. Do not install expensive equipment purely for a possible discount – it may take years to recover the cost – but do keep your insurer updated if you have already improved your security.
Check that your occupancy details are correct too. If you work from home, let rooms to a lodger, leave the property unoccupied for extended periods or run a business from home, your standard policy may need to be adjusted.
The same applies after renovation work. A new kitchen, converted loft or garden office may alter the rebuild cost or the information your insurer needs.
And remember to tell your insurer if the property is listed, built using non-standard materials or undergoing major works.
Do not overlook valuables
If you own jewellery, watches, fine art, antiques, musical instruments or other expensive items, check the single-item limits on your policy.
A standard contents policy may not provide enough cover for a valuable engagement ring or a collection of artwork. Some items may need to be specified separately, with valuations or proof of purchase.
For properties, belongings or buildings that need more specialist attention, high value home insurance may be more suitable than a standard policy.
T&R Direct says its private client team can help with high-value homes, jewellery, fine art, renovation projects and non-standard construction. Options may include cover for multiple properties, worldwide all-risks protection and policies without a standard excess, subject to the insurer’s terms.
The important point is not to assume that a standard policy will automatically cover everything you own. A wedding ring disappearing down the plughole is irritating enough without discovering that it was never insured for its full value.
Compare properly
When your renewal arrives, do not compare price alone.
Check:
- Buildings and contents sums insured
- Accidental damage cover
- Alternative accommodation limits
- Escape-of-water and storm cover
- Personal possessions away from home
- Legal expenses and home emergency cover
- Excesses and exclusions
- Requirements for locks, alarms or property maintenance
A cheaper policy may have lower limits or more exclusions. Conversely, your existing policy may include features you no longer need.
It is also worth checking whether combining buildings and contents insurance gives you a competitive price. T&R Direct offers flexible buildings and contents insurance from a panel of leading UK insurers, so you may be able to compare a wider range of options.
The company’s guide to five tips for cheaper home insurance includes practical suggestions on security, valuations, excesses and shopping around.
Review motor insurance too
Home insurance is not the only renewal worth checking. Motor insurance costs can also remain under pressure because of expensive parts, specialist repairs, vehicle technology and labour costs.
Before renewing, make sure your mileage, occupation, parking arrangements and use of the vehicle are accurate. If you have changed jobs, moved home, added a regular driver or started using the car differently, update your details.
You could also consider whether a different excess, limited mileage policy or telematics option suits your circumstances. But avoid choosing a lower level of cover simply to reduce the premium. A policy that does not meet your needs can prove costly later.
T&R Direct offers motor insurance for a range of drivers and vehicles from an extensive panel of leading UK insurers. Its options include car, van, motorbike, commercial vehicle and classic car insurance, as well as breakdown and excess protection.
Keep your budget flexible
The mortgage-rate reversal is a reminder that household costs do not always move in a straight line. A rate cut can be expected, then delayed. A fixed mortgage deal can become more expensive while the official Bank Rate stays unchanged. And a flat housing market can make everyone more cautious.
You cannot control mortgage markets or the cost of repairs. But you can control how carefully you review your insurance.
Check your rebuild value. Update your contents list. Review valuables and excesses. Compare like-for-like cover. And do the same for your motor insurance before accepting a renewal quote.
If you are arranging a new mortgage, remember that your lender may require buildings insurance to be in place. Do not cancel an existing policy until replacement cover has been confirmed and the dates align.
A few minutes spent checking the small print could help you avoid paying for unsuitable cover – or discovering a gap when you need protection most. That is sensible at any point in the economic cycle, but it seems particularly worthwhile while mortgage rates and household budgets remain unsettled.
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