When you get an EQC payout and the bank says, “I’ll have that, thanks!”

Here’s a scenario you may not have come across before. A homeowner suffered damage to their land during the floods earlier this year. EQC recognised the loss and negotiated a payout.

But the payment was diverted to the homeowner’s bank, which held a mortgage over the property. The bank used this sum to pay down the loan.

The owner was bemused, to say the least.

How can this happen? There’s a reason, and it’s related to the bank’s registered interest in the property.

You might remember from our article about building reports that every bank wants to see a solicitor’s certificate showing the property is insured before it will release funds on a new mortgage. The bank will insist that its interest in the property be noted on the insurance policy. In the event of a large claim on the property the bank receives the payout, not the homeowner.

This is almost certainly what happened here. The bank has been able to reduce or even clear the mortgage debt, and the property owner is left to remediate the damage.

The bank is perfectly within its rights to take this action. It’s part of the deal you sign up to when you accept their funds to buy a property. They now have a financial interest – so they will protect their interest.

A reminder that we don't provide Fire & General Insurance.

We share this story because it illustrates the implications of taking out a loan to buy property. Insurance is an important part of the process, but we don’t have skin in the game.

At Sue Tierney Mortgage, our focus is on protecting your ability to earn, your heath, and risks to life and limb. We don’t provide cover for tangible possessions like houses and cars.

But we're always here to talk - and possibly to refer you to another specialist adviser if you need cover for your home and contents.