Home Buyers Protection Insurance Policy
(Last Updated: 17/09/2024)
06/03/2018
31
5 min read
Buying a home can be a stressful enough process but it undoubtedly gets worse if you're unfortunate enough to have a sale fall through on you, by, for example, being gazumped.
You can remove some of the worry by taking out Home Buyers Protection Insurance, which helps you cover legal, survey and mortgage lending costs if you aren't able to complete your purchase.
What's the risk of your purchase falling through?
Most experts estimate that a massive 1 in 3 property transactions fail and at least 10% of buyers experience gazumping during their purchase.
It isn't just gazumping that can mean your attempted purchase falls through. It may also be because, for example:
- The seller changes his mind and withdraws the property from sale
- The mortgage lender valuation is lower than the accepted offer
- The mortgage lender insists on rectification work
- The survey identifies necessary repair work
- The buyer withdraws due to a change in circumstance (such as job relocation or redundancy)
Regardless, conveyancing costs, particularly if you're buying, are many. SAM Conveyancing, as all good conveyancing solicitors should, offers you a No Sale No Fee guarantee, but that just covers your solicitor's costs. You might have already paid out, as mentioned, for your mortgage product, home buyers survey and conveyancing searches.
Home Buyers Protection Insurance may, therefore be worth considering. This article examines a typical insurance policy (click to download a PDF of it) and examines:
- what is normally covered;
- what isn't covered (limits);
- the critical issue of timing; and
- how much Home Buyers Protection Insurance costs
NB What follows is intended to give you an overview of this type of insurance policy; it is no substitute for taking appropriate legal advice.
What is normally covered in a Home Buyers Protection Insurance policy?
Necessary qualifying conditions
At the start date of the insurance policy, invariably you have to satisfy the following conditions:
- You are over 18 years old;
- Your property purchase isn't subject to a contract race or sealed bids: and
- You are using a solicitor or licensed conveyancer to conduct the conveyancing of the property; and
- You have not had a survey carried out on the property.
What are the insured events covered?
The insured events, i.e. the events which constitute a sale falling through and for which you are covered against losses once you've started paying premiums are:
- The vendor withdraws the property from sale because of reasons beyond your control.
- The vendor receives and accepts an offer from a third party which is a minimum of £1,000 greater than the offer from you which was previously accepted by them.
- A Local Authority Search highlights that the property is the subject of a Compulsory Purchase Order (CP0).
- The vendor isn't legally entitled to sell the property or to transfer interest in the property to you.
- You or the person who is buying the property with you:
- die and the survivor is unable or unwilling to continue with the purchase; or
- are given notice of redundancy and you are unable or unwilling to continue with the purchase; or
- are given notice of relocation and you are unable or unwilling to continue with the purchase.
- You are diagnosed with a terminal illness and are unable or unwilling to continue the purchase.
- The initial mortgage lender's valuation of the proeprty is less than 90% of the sum you have offered for the property and which has been accepted by the vendor.
- Prior to the releasing of funds the mortgage lender insists on rectification work being carried out to the property, the cost of which exceeds 10% of the sum you have offered and which has been accepted by the vendor.
- The mortgage lender applies a retention on the loan for the property and this figure exceeds 10% of the sum you have offered for the property and which has been accepted by the vendor.
- The property sustains damage during the period of insurance where the total cost of rectification work exceeds 10% of the property value.
What costs and expenses are you covered for?
All of the following, if you have incurred them as part of your purchase:
- Conveyancing fees
- Mortgage arrangement fees/lender's fees
- Survey fees
What isn't covered (limits)?
- You aren't covered for costs and expenses:
- Incurred before the start date of the policy (this is critical - see the next section).
- If you withdraw from purchasing the property for reasons other than set down above.
- If you're aware before the start date of any circumstances which could lead to a claim being made under this policy.
- If you deliberately and knowingly cause a delay or behave in a manner that results in the failed purchase.
- Where they can be reimbursed by your employer.
- Where you are able to obtain a refund.
- Where, in the case of redundancy, you are self-employed or are a company director or partner of the company giving notice of redundancy or the redundancy is voluntary.
- You aren't covered in the event of war, confiscation or nationalisation by order of any government.
- You aren't covered if events are a consequence of irradiation, properties and effects caused by radioactive matter including via a nuclear attack.
- You aren't covered in the event of consequences of a computer virus.
- You aren't covered because of any development which came about via terrorism.
Why is timing so important?
It's clear from the policy that it is invalidated if you had have any information prior to taking out the policy which would give you grounds to think that the property sale was likely to fall through.
This would include, for example, receiving a survey report before the start date of the policy - in fact, as noted above, there is a blanket ban on carrying out a survey before the policy starts.
It's also clear that there is no way you can backdate the policy to cover you for any expenses that you incurred before the policy started.
So if you've already paid out for conveyancing before the start date of the policy, then you can't claim conveyancing expenses in the event that the sale falls through.
In sum, you should ensure that you haven't paid out for any expenses you might want to claim for before the policy starts.
You should also be aware that if you had solid evidence to think the sale would fall through before you took out the policy then the insurance company could invalidate any claim you might make.
How much does Home Buyers Protection Insurance cost?
The more coverage you seek the more you can expect your premiums to be.
We offer blah blah blah.
Written by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Reviewed by:
Caragh Bailey
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
