We are buying a house with a garage extension but apparently no
building regulations consent for the extension. I have been advised to
take out an indemnity insurance to cover prosecution, but we are
worried about buildings insurance. Do we have to declare this fact to
the insurers that the garage was built without builidings regulation
consent? The garage looks fine, I think it's safe and everything, but
I am thinking of potential problem when we come to selling the house.

The vendor should be paying for the indemnity insurance since they broke the
law.

You are legally obliged to tell your insurers of any material facts. It
would be wise to do that before buying. Personally I would walk away from
the deal.