New analysis1 from Direct Line SELECT Premier Insurance reveals the huge gulf between the cost of building a house and its market value. With two fifths (41 per cent) of a property’s value (approx. £114,000) derived from factors such as; the quality of local amenities, transport links and schools, as well as demand for homes in the area.
Analysis of property prices for three-bedroom homes across twelve major UK cities reveal that the average house price of £277,608 is 59 per cent higher than the projected rebuild cost of a similar property, which is valued at £164,000.
The cliché of “location, location, location” appears most apt in the capital, where homeowners typically spend an average of over £647,000 for a three-bedroom property, more than three times the average rebuild cost of £205,000. The property premium (£442,571) is in fact so vast, it is higher than the average market value of homes across the UK2.
After London, Brighton has the second highest location premium, with residents on the south coast paying more than double the estimated rebuild cost to purchase a property in the city. This is followed by Bristol, Edinburgh and Norwich, all of which have location premiums of 60 per cent or higher.
Table one: Average market values and rebuild costs of three-bed properties in 12 major UK cities
| Region | City | Average cost of a three-bed house | Estimated rebuild cost of a three-bed house | Premium |
| London | London | £647,571 | £205,000 | 216% |
| South East | Brighton | £448,506 | £188,000 | 139% |
| South West | Bristol | £305,574 | £168,000 | 82% |
| Scotland | Edinburgh | £275,976 | £170,000 | 62% |
| East of England | Norwich | £247,893 | £155,000 | 60% |
| Wales | Cardiff | £242,720 | £162,000 | 50% |
| East Midlands | Leicester | £220,708 | £164,000 | 35% |
| West Midlands | Birmingham | £219,585 | £164,000 | 34% |
| Yorkshire and The Humber | Leeds | £208,986 | £157,000 | 33% |
| Northern Ireland | Belfast | £147,797 | £112,000 | 32% |
| North West | Manchester | £205,247 | £164,000 | 25% |
| North East | Newcastle | £160,732 | £158,000 | 2% |
| United Kingdom | £277,608 | £164,917 | 69% |
Source: Direct Line SELECT Premier Insurance 2018
Further research conducted by SELECT reveals the public have little to no idea of the amount it would cost of rebuild their property, with British adults estimating it would cost an average of £226,750 to rebuild a three-bedroom house, 38 per cent more than the actual cost. As a result homeowners could be using an inaccurate figure when buying home insurance and therefore increasing the cost of their building insurance unnecessarily.
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