Home buyers' protection insurance: How can it help me?
Looking at Home Buyers' and Home Sellers' Protection Insurance and how it can help you...
When buying a house, there’s always a risk that something can go wrong. Whether the survey shows serious problems, you get gazumped or there’s a chain break, there’s always room for error.
One little thing that may help you to feel less worried if the house sale is to fall through is Home Buyers’ Protection Insurance. In fact, that’s probably why you’ve ended up here, with you wondering what is Home Buyers’ Protection Insurance and how can it help me?
You may also be reading this as a seller and thinking ‘what about me?’ in which case, don’t worry! We have a section for you too, with the full rundown on Home Sellers’ Protection Insurance and what to do if you’re fed up and want to find a guaranteed buyer.
What is Home Buyers’ Protection Insurance?
Home Buyers’ Protection Insurance does exactly what it says ‘on the tin’ – insurance which will protect you as a buyer in the event of the house sale falling through, whether it’s because you’re gazumped or simply that the seller changes their mind.
In case you’re unsure, being gazumped is when the buyer accepts another offer after having already accepted your offer, whether it’s because they have put in a higher offer or can promise a faster sale.
Home Buyers’ Protection Insurance allows you to claim back some of the fees you have faced in the lead-up to purchasing a property – you know, conveyancing fees, survey fees, house repayments fees…
Most Home Buyers’ Protection Insurance will cover and provide the following:
Conveyancing fees up to £750 including VAT
house repayments lender’s fees up to £250 including VAT
Survey/valuation fees up to £500 including VAT
Gazumping protection, if the offer is accepted, is at least £1000 higher than yours
Policy valid for either 120 or 180 days
There are certain circumstances where Home Buyers’ Protection Insurance will apply, which are:
Local Authority search shows the property is subject to a compulsory purchase order (this is where public bodies, such as the government, can force the homeowner to sell up in certain circumstances)
The property valuation is less than 90% of the accepted offer
The property owner changes their mind and withdraws their house from the market
The vendor isn’t legally entitled to the property
The property is damaged during the period of cover and it costs more than 10% of the property value to repair
The vendor accepts an offer which is greater than the sum which has been offered and accepted by the vendor – in other words, you’re gazumped
The (insured) buyer is diagnosed with a terminal illness, dies, or is given notice of redundancy or relocation, and are therefore unable or unwilling to continue the process
The house repayments lender insists on rectification works being carried out, or applies retention on the loan, before they make funds available
Is it illegal to gazump?
Despite how it may feel, gazumping is actually not illegal in most parts of the UK. In England and Wales, up until the point of exchange of contracts, the sale isn’t legally binding and therefore up until this point, it’s legal to gazump.
There’s no limit on gazumping, so you can do it as many times as you like. It’s important to keep in mind, though, if you are to gazump several times, you’re slowing the process down, as each new buyer will ‘start from scratch’ in regard to getting surveys, house repayments and all other parts of the ‘moving house process’.
In Scotland, however, it is illegal to gazump. As soon as an offer is accepted on a property, even though it may only be verbally, this is legally binding, making any gazumping against the law. This is one major difference in the Scottish ‘house buying legislation’ compared to other parts of the UK.
Do I need Home Buyers’ Protection Insurance?
Whether you feel you need Home Buyers’ Protection Insurance is down to your own personal opinion. It’s not a legal requirement but if you’re getting a house repayments, the lender will probably insist that you have it.
Like with anything, with buying a house comes risks and Home Buyers’ Protection Insurance would help you to feel more reassured that some of your costs would be covered if the worst was to happen and the sale was to fall through.
A downside of Home Buyers’ Protection Insurance is the restrictions that apply as to what you can claim back, which could leave you paying for insurance which doesn’t let you claim on what you need, further adding to the expense of a fallen through sale.
You may also find these restrictions mean you’re not able to claim back all of the money spent and instead just a small portion of the big fees.
What is the risk of a house sale falling through?
According the ‘Quick Move Now’, 4 in 10 property purchases fall through, with them placing the annual fall through rate of 2020 at 42%. These figures show there’s always almost a 50/50 chance your house sale could fall through.
Why might a house sale fall through you ask? That leads us perfectly onto…
Why would a house sale fall through?
So, now we know what the risk is of a house falling through, this begs the question – ‘why would a house sale fall through?’ Well, you’re asking the right people! We have a list of different reasons as to why a house sale may fall through, so you can be prepared:
Chain break - A ‘chain’ is where a number of house transactions are linked together, with each sale relying on one another. If one ‘link’ in the chain was to break, everyone else’s sales would collapse, leaving you with no buyer and therefore no funds to buy
Gazumping - As we mentioned earlier, being gazumped is when the seller accepts another offer, after already accepting your offer previously, causing the sale to fall through
Gazundering - Nope, we’re not repeating ourselves! Gazundering is different to gazumping, despite the spelling looking very similar! Being gazundered is when a buyer suddenly reduces their offer just before exchange, which can be reduced so low that you don’t want to go through with the sale, meaning the sale falls through
House survey - A housing survey can often uncover some major structural issues which weren’t initially obvious from just viewing the house. As a result of discovering major issues, the buyer may want to renegotiate (if the seller is okay with this), or often, the findings can result in the wholesale falling through
Mortgages - There are various things that can go wrong with mortgage offers. For example, the house repayments lenders may value a property at less than the buyer has agreed to pay, which, unless the buyer can renegotiate a price, may lead to the house repayments lender refusing to lend on the property, causing the sale to fall through
Missing a deadline - Most notable deadlines are house repayments offer deadlines or the current ‘Stamp Duty Holiday’ deadline. If, for example, the house-buying process looks like it will go past the deadline for the stamp duty holiday, then the sale will become more expensive, meaning some may no longer be able to afford it and so will have to pull out of the sale
Change of heart - Often buyers or sellers can simply change their mind about moving to a new house and so pull out of the sale, meaning the sale will fall through. This can’t be helped or foreseen but can be very frustrating as you will likely get no notice
What about Home Sellers’ Protection Insurance?
If you’re reading this as a seller you will probably be thinking ‘what about me? Is there any insurance to protect me?’ and the answer to this is yes, and it’s imaginatively titled ‘Home Sellers’ Protection Insurance’…
Home Sellers’ Protection Insurance does exactly the same as Home Buyers’ Protection Insurance but this time for sellers, as it promises to cover the costs incurred by the seller, if the sale is to fall through.
Just like Home Buyers’ Protection Insurance, Home Sellers’ Protection Insurance has a cost limit as to what will be covered, with the limit set at £1,000 – if you are to go over this, you will have to cover the rest of the cost yourself.
There are also certain circumstances which must have occurred in order for the Home Sellers’ Protection Insurance to cover your fees, which are the following:
Buyer has a search on the property which shows up major issues, which stops the sale from going through
Buyer's house repayments lender values the property at less than the accepted offer
Structural defects are identified in the property and the cost of repair exceeds 10% of the accepted offer
Buyer is diagnosed with a terminal illness, dies, or is given notice of redundancy or relocation and is unable or unwilling to continue with purchase
Although the Home Sellers’ Protection Insurance may sound like a good idea, it has its limitations. Whilst it offers to cover some of the costs lost by a sale falling through, it may not be able to cover the total cost.
You will also have to pay for the insurance, adding an extra cost into the moving process, and it’s also unable to fully compensate for a lost sale. After all, it can’t guarantee you a buyer.
But we do know something that can…
Sell your property to us!
Here at The Property Buying Company we’re a cash buyer of houses with over 50 years combined experience and countless great Trustpilot reviews, which we believe makes us a buyer you can trust.
Selling to us you don’t need any Home Buyers’ or Home Sellers’ Protection Insurance and we cover all your legal fees, meaning you won’t pay a penny and will get the cash for your house straight into your bank!
We buy any house in any condition and, unlike most buyers, our offer isn’t subject to a survey.
Sounds good? Why not give us a call or fill in our online form to receive a no-obligation cash offer, giving you a guaranteed buyer and no need to spend on insurance – it’s worth a try!