A renovation loan is one of the most important tools a condominium has: roof replacement, façade, replacement of the riser pipes, a lift, energy-efficiency upgrades – in many buildings these can only be carried out with a loan, or with a combination of a loan, a grant and the building's own fund. During the credit assessment, the bank also asks for documents on the building's insurance, and this is when the common representative discovers that the policy's sum insured, unchanged for years, a missing cover or the lack of a bank clause is an obstacle to disbursement. As a broker, I see that the loan comes up twice from an insurance point of view: at the assessment, as a condition, and during the loan term, as an ongoing obligation. This article is about the building's own loan; the insurance questions of residents' individual home loans are covered in the article on home loans.
- For a condominium loan, banks typically expect valid property insurance with at least fire and natural-peril cover, a sum insured that reaches the loan amount or the rebuilding value, and either a bank clause on the policy or an assignment of the insurance benefit – the exact requirement differs from bank to bank.
- Under the Condominium Act (Tht.), the general meeting decides on taking out a loan, and the resolution must – where necessary – also contain the conditions and method of implementation; it is worth writing the insurance arrangements into it as well (increasing the sum insured, the clause, authorisation).
- The clause and the assignment apply for the entire loan term: when switching insurer, when a premium goes unpaid and in the event of a larger claim, the bank becomes a party to the matter – the building should not find this out after the fact.
Why does the bank require insurance for the building's loan?
A condominium loan is in a special position. The common property belongs to the co-owners, so condominium loans are typically not secured by a mortgage registered on the common property; the bank's security is assembled from other sources: the income from common charges (through a collection authorisation or an assignment), the renovation fund and the building's property insurance. The role of the insurance is simple: if the roof or façade renewed with the loan is damaged, the bank's claim still stands – in that case it is the insurer's payment that replaces the value of the security. That is why the bank wants to see its own name on the policy.
An important difference compared with residents' individual loans: the Act on credit to consumers (Fhtv.) applies to consumers – natural persons acting outside their independent profession and business activity – and a condominium is not one. The rule that the bank must accept equivalent insurance from another provider therefore does not, as a general rule, extend to the building's loan; here the insurance requirement is a condition of the loan agreement. As a broker, I see that banks nevertheless typically look at the content – cover, amount, clause – rather than at the identity of the insurer, but it is worth asking for the requirement in writing before the building changes anything on its policy.
The three requirements: scope of cover, sum insured, clause
Based on banks' information sheets and loan agreements, the requirement typically has three elements; the details vary from bank to bank. The first is the scope of cover: at least fire and natural-peril cover for the building, and at several banks also water damage from pipework and building liability; if solar panels, a heat pump or a lift are installed with the loan, the new equipment should also be included in the cover. The second is the sum insured: the bank expects at least the loan amount, often the rebuilding value of the building. For many buildings this is an unpleasant realisation: the amount that has stood on the policy for years reaches neither the bank's requirement nor the real value – the article on increasing the sum insured describes how to raise it.
The third is the bank being named on the policy. Two forms exist side by side, and banks ask for one or the other, sometimes both. The mortgagee or beneficiary clause – in practice, a loan-security clause – is part of the policy: the insurer names the bank, in the event of a larger claim pays with the bank's consent or to the bank, and notifies the bank if the contract ends or the premium goes unpaid. An assignment, by contrast, is a separate agreement between the building and the bank: the building assigns its claim under the insurance contract – the payout – to the bank up to the amount of the outstanding debt, and the insurer must be notified of this. Both forms require an amendment to the contract or the insurer's acknowledgement, which only the policyholder – that is, the condominium – can request, through the common representative. For the assessment, the bank typically asks for the insurer's written confirmation of cover; how long it takes to issue varies from insurer to insurer, so it is not worth leaving it to the last few days.
The general meeting's decision: what should the resolution contain?
Under Section 28 (1) of the Condominium Act (Tht.), taking out a loan falls within the exclusive competence of the general meeting: the general meeting decides on undertaking expenditure beyond the scope of ordinary management and on undertaking obligations that burden the community – a loan is the latter. Under Section 28 (2), the resolution must contain, word for word, the subject of the agenda item, the decision and – where necessary – the conditions and method of implementation. As a general rule, the required majority is a simple majority of those present, counted by ownership share (Section 38 (2)), but for expenditure beyond the scope of ordinary management the Act requires a unanimous resolution (Section 38 (3)). According to the Act's interpretative provisions, renovation falls within maintenance, while expenditure beyond the scope of ordinary management means extending or converting the commonly owned building or building part, or creating a new building part or building installation – so replacing the roof or renovating the façade does not, as a general rule, require a unanimous decision, whereas installing a new lift may fall into this category; which category a given investment falls into, and whether the SZMSZ prescribes a higher majority, has to be checked building by building; moreover, banks themselves often expect a majority of a specified ownership share in the resolution, which varies from bank to bank.
From an insurance perspective, a good resolution does not stop at the loan amount and term. It is worth including the common representative's authorisation to sign the loan agreement, the clause endorsement or the assignment declaration, the increase of the sum insured and its effect on the premium, and what insurance solution the building will use for the duration of the renovation. That way there is no need to convene a second general meeting when the bank objects to the policy. The article on draft resolutions provides a template for the wording. Several local authorities also offer separate support to buildings renovating with a loan: the 2026 decree of Zugló (Budapest District XIV), for example, provides for interest-free, repayable renovation and own-contribution support, and for a non-repayable interest subsidy – the latter reimburses the whole of the interest actually paid over and above the state interest subsidy paid to the financial institution, up to HUF 5 million – and, depending on the form of support, the application requires the general meeting resolution approving the loan, the bank's preliminary letter of acceptance, or a copy of the loan agreement and the bank's interest certificate. It is worth checking what your own district offers when planning the loan.
During the loan term: switching, unpaid premium, claims
The clause and the assignment do not end with disbursement. If the building switches insurer during the loan term, the bank's clause must also be entered on the new policy, and loan agreements often require the bank's prior consent to the switch – so before switching, the loan agreement must be checked too, not just the policy. If the premium goes unpaid, under Section 6:449 of the Hungarian Civil Code (Ptk.) the insurer sends a written reminder warning of the consequences and setting a 30-day grace period, and if this expires without result, the contract terminates retroactively to the premium due date; because of the clause, the bank is also notified, which may count as a breach of contract under the loan agreement. In the event of a larger claim, the insurer asks for the bank's statement before paying out; the bank typically allows the money to be used for reinstatement if the building actually carries out the reinstatement, otherwise it may apply it to reducing the debt – this varies by bank and by loan agreement.
The renovation itself is also an insurance matter: for a building that is under scaffolding and partly stripped out, the limits of the existing policy are different, and the contractor's liability and the question of construction and erection all-risks insurance also come up – the article on insurance during renovation explores this. And once the works are complete, the sum insured must be reviewed because of the increased value: a building renewed with the loan is worth more, and the bank's clause also protects its security at the new value.
What should the common representative do before the loan application?
- Ask the bank for its insurance requirements in writing: scope of cover, sum insured, the form of the clause or assignment, and the content of the confirmation of cover.
- Compare them with the building's policy: is the amount sufficient, is every required cover included, and does another bank's clause already appear on the policy?
- If an increase or a clause is needed, it is requested from the insurer by the policyholder – the building; allow for the insurer's processing time and the change in premium.
- Alongside the details of the loan, the general meeting resolution should also include the authorisation for the insurance tasks.
- Put the confirmation of cover, the policy with the bank clause and the assignment declaration in the building's insurance file – they will come up several times during the loan term.
Meeting the bank's requirements and the general meeting's decision remain the building's responsibility; if you let me know before the loan application, I prepare the comparison and the paperwork.
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Sources
- Condominium Act (Tht.) Section 28 (1)–(2), Section 38 (2)–(3) (Act CXXXIII of 2003 on condominiums) – Nemzeti Jogszabálytár (National Legislation Database)
- Hungarian Civil Code (Ptk.) Section 6:449 (Act V of 2013) – Nemzeti Jogszabálytár (National Legislation Database)
- Fhtv. (Act CLXII of 2009 on credit to consumers) – scope, definition of consumer; Section 14/A (4): acceptance of equivalent insurance from another provider for consumer mortgage loans – Nemzeti Jogszabálytár (National Legislation Database)
- Decree 22/2026. (VII. 16.) of the Council of the Municipality of Budapest District XIV Zugló on interest-free, repayable renovation support, interest-free, repayable own-contribution support and non-repayable interest subsidy for condominiums and housing cooperative buildings – Nemzeti Jogszabálytár (National Legislation Database)
