Block of flats insurance - noting a mortgage companies interest

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Most normal, ordinary folk don't buy their house or flat in cash

. You will normally arrange a mortgage, pay a certain percentage yourself (5 or 10% or even more), and then receive a loan, spread over many years for the remainder.

Your mortgage company wants to protect this loan. Even though we have seen a significant house price crash, property prices are still high and can be unaffordable for many. To protect this loan, they want to know a) if you are going to pay it back and b) if something happens to the asset that the loan is made against, then the asset is protected.

Knowing if you are going to pay it back is the mortgagors problem, they make this decision at the outset. As far as protecting the asset, they make this a condition of the mortgage. If it is a commercial mortgage, they will insist on you proving commercial property insurance in place.

But want happens on a residential flat mortgage, when you have a management association that has a block of flats insurance policy in place? You do not control or own that policy so what exactly do or can you do to satisfy your mortgage company?
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There are two ways this is dealt with. Firstly, you can have their name, address and your account number specifically noted on the policy, mentioning your flat. For example, it is noted and agreed that the financial interest of XYZ plc is noted in respect of Flat A.

The problem with this is that it can be time-consuming (for you) and there can be a cost for amended documents to be issued.

As a result, the second way of dealing with this is with a mortgagors interest clause. As part of your policy wording, usually from a business insurance company, there will be terms, conditions, excesses, clauses and warranties. One of these will cover the fact that mortgage companies want to ensure that the asset (your house or flat) is properly insured.

All the clause basically says is that they will automatically note the financial interest of any financial company that has a loan secured against a flat insured under the policy. You do not need to notify the insurer of your individual details. The very fact that you own a flat and there is a policy in place, is enough for the clause to kick in and the interest to be noted.

If you are asked to prove this, all you need to do is to get hold of two documents, which usually come combined. The first one is the insurance schedule, which confirms the overall sum insured, cover in place, the period of cover and the actual risk address. The second one is the policy wording, this is the document that will contain the relevant interest clause. You can usually get this document emailed through to you for speed and ease, if your broker or insurer tries to charge you for this, do not accept it. You need to stand your ground and ask them for the justification for charging to send a five minute email.

Block of flats insurance - noting a mortgage companies interest

By: Jack Brown

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