Local Authority Search Indemnity Insurance
14/12/2020
255
9 min read
What is local search indemnity insurance?
Local Authority Search Indemnity Insurance is obtained through your solicitor when:
- Remortgaging and you don't want to have to get a new local search as you purchased one when you bought the property; or
- Purchasing and your local search isn't going to be returned in time for your desired completion date.
The indemnity insurance carries a protects against a risk and for this reason you need an FCA regulated company or solicitor to explain the risks and terms of the insurance policy to you.
Whilst it is very common to take out this insurance It is very common to take this indemnity insurance out after you already have the local authority search during a remortgage.
However, there may be occasions during a purchase you need the insurance, especially when local authorities are taking in excess of 2 months to return the local authority search.
The cost of the local authority search indemnity insurance varies based on the insurance provider and the value of the property.
This insurance can't be purchased by you directly through the insurer as it requires the terms to be explained to you by a solicitor.
What is covered with no search indemnity insurance?
You would need to check the terms in your own insurance policy, however here is what one policy states:
All or any of:
- disposal for value of all or part of Your interest in the title to the Property following an Order which causes You to realise a reduction in Market Value; or
- actual dispossession from all or part of Your Property following an Order which causes You to realise a reduction in Market Value; or
- such other event following an Order which causes You to realise a reduction in Market Value.
Disclaimer: You must seek appropriate legal advice from a solicitor before choosing to take out any insurance indemnity policy.
This article examines:
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What is Local Authority Search Indemnity Insurance?
It is a type of insurance which means that you're insured in the event that an order is served causing you to sell the property under the price paid for the property. Here are the different types of indemnity insurances you can obtain:
- Search Insurance (Residential) - No Search Purchase - Purchaser Borrower and Lender
- Search Insurance (Residential) - No Search Remortgage - Purchaser Borrower and Lender
- Search Insurance (Residential) - Search Delay - Purchaser Borrower and Lender
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What is a Local Authority Search?
The local authority search is the most important of the standard property conveyancing searches which examine aspects of the land which the property you're interested in buying is built on.
The information is not obtainable though any other source other than through the council, although the seller may provide some documents, such as planning permission or building control certificates.
The key points reported on in the search include:
- Planning permission
- Building Control Works including extensions/conversions, Part P - electrical works, subsidence (under pinning), boiler installation and double glazing installation.
- Local land charges (costs that you are liable for) such as Section 106 and Smoke Control Order
- Public Rights of Way
- Highways information including who is responsible for maintaining your road
- Risks of radon
- It can also show whether that council has permitted any major development to be built in the vicinity of your property which might seriously affect your enjoyment of it
The volume of critical information contained within the local search is clear to see and isn't information that can be reliably provided by the seller.
If you're buying a property using a mortgage, your lender will always insist on you buying this search along with three others as standard; this is examined more fully (along with presenting other useful information) in this article - Which Property Searches do I need?
Do you only get searches if you're a mortgage buyer?
Although you're only required to buy searches as a mortgage buyer, you are strongly advised to purchase them anyway even if you're buying with cash and could choose not to.
Click on Cash Buyer to find out more about this.
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When can you use Local Authority Indemnity Insurance?
It all depends on your lender and the particular conveyancing work you're looking to carry out.
Lenders will sometimes permit you to have this insurance for certain transactions/services, such as remortgages (no search indemnity insurance remortgage), but not for others, such as purchases.
Some lenders refuse to allow indemnity insurance of this nature outright. Others allow it but subject to conditions.
You/your conveyancer must therefore be clear about your individual lender's requirements if you are considering this insurance as opposed to getting a Local Authority Search.
Gov.UK's guidance on Indemnity Insurance explains what requirements your conveyancer will have to meet regarding indemnity insurance.
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Local Authority Search Indemnity Insurance vs. Local Authority Search - Pros and Cons
Once you've established that your lender accepts search insurance instead of a Local Authority Search, you should carefully decide if the insurance suits your needs better.
If the relevant local authority has a projected wait time of, say, 2 months or more, this might derail your conveyancing meaning that getting insurance might be your only option for speed (or at least you might have to consider purchasing both products).
Local search indemnity insurance new build might be used to advantage in the event a mortgage offer runs out when waiting for the build completion, although this depends on the lender.
Local Authority Search - Pros and Cons
Pros
- Varies on property and locality
- Gives wide-ranging information on property and associated risks
- Can help in you in making a decision about whether or not to go ahead with the purchase
- Gives your solicitor a powerful piece of information when it comes to generating enquiries and finally writing you a comprehensive report on title
Cons
- Can take days or several weeks to be returned: this might derail your conveyancing
- Normally costs considerably more than insurance - particularly if you have to book an official local authority search (can be in the £100s)
- Does not provide insurance
Search Insurance
Pros
- Can be very quickly set up and is in place once payment has been made
- Prices vary either according to the price of the property or to the level of indemnity required normally
- Insured against many events
Cons
- Insurance doesn't guarantee complete protection
- You don't receive detailed information about potential threats - these might seriously lower your enjoyment of your property
- When it comes to selling, if your buyer purchases the Local Authority Search, this might uncover detrimental information regarding the sale and you would be unprepared for this
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How much does Local Authority Search Indemnity Insurance cost?
As stated, this normally depends either on the limit of liability which you might request or on the property price or some combination of both.
At press time, we found a quote for £130 for a No Search policy for a single private dwelling for a £1,000,000 indemnity limit. For the same company, we lowered the indemnity limit to £500,000 and were quoted £85.
For comparison, a personal regulated local authority search might cost you between £150 - £250 or more as a standalone product.
As stated previously, Official Local Authority Searches cost more and might be perhaps up to £500 or so.
You should note, however, that as a mortgage buyer you'd normally buy your local authority search alongside at least 3 other searches as a package.
You can't take out the insurance yourself
Indemnity policies are an insurance and can only be sold by FCA: Financial Conduct Authority regulated insurance providers or regulated solicitor.
Much like any insurance product, the insurance provider is expected to explain the terms of the policy and ensure its suitability for your circumstances.
You cannot obtain this indemnity insurance direct with the insurance provider.
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Why you shouldn't use no search indemnity on your purchase?
The local search is one of the most important searches when buying a property due to the volume of information it contains that you can't get anywhere else.
Here are some of the risks and the knock on effects:
- Load bearing wall - if the seller has removed a load bearing wall the property could be structurally unstable unless adequate strengthening was installed such as an RSJ.
The council will hold records if the works have been signed off to building control standard. If works haven't been signed off at building control it will effect any future resale value and could lead to cracks or, in the worst case scenario, the property to collapse.
After all, what can you expect when removing a load bearing wall without any strengthening? - Extensions/Conversions - if the seller has extended the property but not used compliant building methods or materials then future buyers will look to negotiate on the sale price and, if getting a mortgage, the lender will want an indemnity.
What isn't considered but is a material issue is that the Building Regulations are there to protect home owners. Faulty installation of electrical sockets in an extension can cause a fire and the chance of injury or death to anyone in the property. - Boiler - if the seller has installed a boiler themselves and not used a Gas Safety trained engineer then you run the risk of injury or death and future challenges having to pay to get the installation work signed off to current Building Control Standards by a Gas Safety engineer.
There are indemnities to protect against the effect of the property value by having no building control sign off, there is no insurance to cover the cost of injury or death.
Whilst the above are dramatic, they are real challenges buyers face by not getting the local authority search.
This is why an indemnity is used for a remortgage where you obtain the local authority search when you bought the property because you are already aware of what works have been signed off by building control and logged at the council.
This is why an indemnity is used for a remortgage where you obtain the local authority search when you bought the property because you are already aware of what works have been signed off by building control and logged at the council.
Frequently Asked Questions
You can get no search indemnity insurance, but remember, insurance doesn't guarantee complete protection.
A no search indemnity insurance policy protects you against your house being worth less due to problems that would have been found, had you had the local authority searches before you concluded the purchase.
This search examines matters such as local land charges (including, for example, tree preservation orders) and details on planning applications relevant to the property, restrictions on permitted development, road schemes and contaminated land. All information is derived from the local authority.
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