Home buyer protection insurance is a great way to protect the costs that you have to pay before getting the keys to your new home.
Although regular home insurance provides good protection for unforeseen events in your home after you move in, it doesn’t cover any costs that you run up before this point.
What is Home Buyer Protection Insurance?
A lot of costs have to be paid upfront by a buyer. This is where home buyer protection insurance can come in handy, providing cover for some of the costs already incurred in the process. Normally home buyers have to pay for the following costs:
- Valuation fees
- Surveying fees
- Mortgage broker fees
- Legal fees
Unfortunately many home sales do not complete and “fall through”. According to data from Quick Move Now, 43% of home sales fell through in 2020.
Having a house sale fall through can be emotionally draining, but home buyers rarely think of the financial cost of this until later on when they have picked up the courage to start again.
Most professionals hired in the home buying process don’t offer a refund on work performed if a home sale falls through (some legal costs can be avoided at the early stage though).
What events could Home Buyer Protection Insurance cover?
Some of the most common reasons for a home sale falling through include the following:
- You get gazumped
- You have a change in your financial circumstances
- The seller pulls out of the sale
- The mortgage lender refuses to lend until certain rectification work is done to the property
- The valuation on the home has come back lower than the price you have offered to pay
- Another buyer or seller in the chain pulls out, making it impossible for the chain to complete
- The property is damaged during the buying process that requires a significant cost to restore.
- It is discovered that the seller is not legally entitled to sell the property (it does happen!)
Depending on the type of insurance policy selected, you may be able to cover most of the situations described above.
Key Points To Note About Home Buyer Protection Insurance
There are some points to be aware of when shopping around for the best cover.
Limits Limits Limits
- There are usually limits on how much can be claimed for each activity (for example a maximum amount to claim on conveyancing fees etc). Usually cheaper insurance has lower limits (you tend to get what you pay for) so you must review the claim limits in the policy.
Coverage Dates
- This is more of an obvious point – but typically you won’t get cover for a period the insurance is not in place. So it is important to have the insurance organised and purchased before any activities commence after an offer has been accepted.
The insurance will only be in place for a set period, and typically policies range between 120 – 180 days. This means you need to set a date in your calendar to note when cover expires.
Ending the Policy
- Some policies terminate once a claim has been made by you. This means that if your first house purchase failed you would not be able to rely on the same insurance policy to cover you for a second sale falling through on a different home.
Excess
- An excess requires you to pay an amount to the insurer to make a claim. Effectively it means you never get back the full amount of cost that you spent (this tends to be in place to stop people submitting false claims). Although more insurance policies are removing the need for an excess there are still some that do levy one, so make sure to check the excess amounts on the policy.
When Home Buyer Protection Insurance Doesn’t Work
Like many insurance policies, there are situations not covered. The following lists are typical examples where your insurance may not cover you*:
- You were aware that the home purchase would not have been completed before insurance was bought. This can cover events such as you having information that would have led to this conclusion – for example a survey report that highlights issues.
- Costs incurred before the start date of the policy.
- You withdraw from the home purchase for reasons that are not covered by the policy
- You deliberately cause a delay or cause behaviour that results in the transaction failing
- You are successful in getting the fees refunded (and therefore would not require an insurance payment to reimburse you)
- The property is bought through sealed bids or a ‘contract race’.
* Please note that every insurance policy will have different terms. Our lists above cannot capture every scenario and are not exhaustive lists, but we illustrate the most common attributes to make you aware of typical areas to look into.
Our view
The property market in the UK can bring highs and lows to buyers. The many hurdles to jump over to buy a home can mean some house purchases do fail.
But for many first time buyers, losing money to legals, surveys and mortgage brokers can cause a significant dent in their remaining funds. It can also make things more difficult when going for another house purchase – not to mention the emotional toll of it all. When costs escalate to the several thousands, home buyer protection insurance can be a smart move.