The ins and outs of building indemnity insurance REVEALED!
When selling your property or making an onward purchase, building regulations, indemnity insurance and other technical details, tend to get muscled to the back of the queue. But then again, it's not hard to see why. Tense price negotiations, house repayments applications and your solicitor's legal habits are more than enough to keep you occupied. Although that's not to say that building indemnity insurance is something you can afford to bulldoze into the background - quite the opposite.
You see, when buying a house there's always some element of risk. A risk that the house you're about to buy has underlying structural problems. Or perhaps the risk that there's an ongoing dispute hidden within the legals. Whatever this risk, there's no getting around the fact it could drastically affect your property's value, as well as the speed of your completion date. Hardly ideal when you're looking to sell your house fast.
Not that you'd have to worry about scenarios like this if you were to make the small step to invest in property indemnity insurance. So, if that's why you're here, to minimise the risk of your property sale, then keep reading. Below we'll decipher what a building indemnity policy actually is, as well as how it can help you mitigate risk.
After something specific about property indemnity insurance? Or just curious as to how it works when selling a house? Use the menu below to get the answers you need in one click...
- What is Property Indemnity Insurance? What does it cover?
- What does indemnity insurance cover?
- How much is building indemnity insurance?
- Who should pay for an indemnity policy when selling a house?
- I'm a seller - do I really need building indemnity insurance?
- How to sell fast without building indemnity insurance
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Property Indemnity Insurance is a type of legal cover, that's available for you to purchase during your property transaction. The idea behind a policy is to counter the risk of your property dropping in value, should any underlying defects crop up.
This could be anything from issues flagged up by your surveyor or conveyancer as the sale is going through, to more long-term issues that you incur once the property is legally yours. So for instance, if your surveyor notices a costly fault with the roof, you'd be covered. Just as if X amount of years down the line you realise that you're missing a vital piece of planning permission. It's in situations like these that building indemnity insurance pays dividend - it can even be a handy tool.
In some instances, indemnity insurance could even be all you need to avoid your house repayments lender from pulling out - i.e. your sale falling through. Do so, and because you're no longer liable for any inherited costs, you're virtually eliminating the risk of any defects. Therefore, there's far more chance that you'll be able to make payment should an unexpected issue arise. A safety net, which in the eyes of a lender makes you a far more attractive (and reliable) prospect.
NOTE: Indemnity insurance will only fund compensation for the specific issue. You'll still have to organise repairs etc. yourself if you do claim.
What indemnity insurance covers depends on what type of policy you opt for. If you believe a specific aspect of your home requires protection then chances are there's a form of cover out there for you. Equally, if there's a few areas where you property perhaps falls short, insurers have been known to bundle policies together too - usually at a lower cost. But ultimately what you opt for depends on both you and the condition of the house. Here's just some of the most common forms of indemnity insurance below...
SELLERS: Don't scroll away - keep reading! Understand what would cause a buyer to seek indemnity insurance and you know how to win their confidence.
Restrictive covenant indemnity insurance - Buy a property that sits within a restrictive covenant and you'll likely be limited to how you can use it. Plus, all covenants are different (they're bespoke to each property), so submitting an offer without taking them into account is a major school boy error! Reason being that breaching a covenant can be costly, even if you weren't the one to do so.
That's right - if you buy a house where the previous owner has breached a covenant, you could still be liable for the consequences. Extensions are one of the most likely culprits, so be sure to investigate these in detail before you buy. Otherwise you could be forced to pull them down or pay for adaptations - costs that an indemnity insurance policy would cover.
Planning permission and building regs indemnity insurance - Planning permission and building regulations are another technical niggle, which it's worth triple checking before making an offer. After all, not only are both hard to adhere to, but they're also costly mistakes to make. If a property has been renovated by an owner, pay particular attention to these!!
Yet again, extensions are one to watch out for here. In the UK, you're allowed to extend up to 6 metres from the back of a house without planning permission, providing of course it's a single storey. If it's detached this increases to 8 metres. And even if the extension does fall into these parameters, still be suspicious. Remember, while an extension may adhere to planning permission, it may not adhere to building regulations. All of which you should be covered against by opting for an indemnity policy.
Indemnity cover for a property's windows and doors - Although doors and windows are something that every good surveyor should inspect, there's no guarantee that they will. And although you may not think it, windows and doors require a LOT of essential documentation. Without it, you risk being forced to have one, or potentially all of them replaced.
Just like most home improvements, windows and doors must be installed in-line with building regs, as well as come with the necessary certificates to back that up. The certificate all windows and doors are required to have goes by the name of a FENSA certificate - a document provided by the company that fitted the windows. If a house you're looking to buy doesn't have a FENSA certificate then covering them with indemnity insurance would be a wise move.
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NOTE: Even if windows do have a FENSA certificate, indemnity insurance could still be worth your while. As double glazing ages (particularly the older variants), the seals perish and moisture seems in-between the two panes of glass - i.e. they'll need to be replaced. So if you plan on keeping the existing windows and doors for a long while longer, then insuring your doors and windows could be a wise precaution.
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Price is where building indemnity insurance differs to the usual insurance premium. Opposed to being structured as a series of yearly/ monthly payments, indemnity insurance is charged as an up-front lump sum. All of which means that it's actual value to you can differ depending your situation as a buyer and how you intend to use the property. So, here's a few factors that could determine whether indemnity insurance is worth the cost...
- Is it a long-term investment - Fact remains that the longer you intend to keep a house, the more likely it is that you run into unforeseen issues. Equally, because indemnity cover comes at a fixed price, the longer you keep the house, the less the policy has cost you per month. Hence why you won't catch many 'buy-to-flip' property developers taking out indemnity insurance, but you will find it with a lot of everyday homeowners.
- The severity of any issues - Ultimately it's the condition of a house that will determine how valuable indemnity cover actually is to you. If you know that either physically or legally the property is in a bad state, then investing in indemnity cover would be a wise idea, especially if a vendor is lacking any form of certification.
Great, but how much does it actually cost?
The cost of indemnity insurance varies quite substantially. In the end, it all comes down to both the value of the property and the level of cover you're after.
So for instance, if the property in question is a two-bed terrace and you're looking to protect yourself against church repairs, insurance could set you back as little as £30-£40. Whereas to protect the characterful sash windows of a countryside cottage could set you back several hundred pounds. For a decent level of cover, the typical homeowner can expect to pay anywhere in the region of £50-£300.
NOTE: If you're after cheap indemnity insurance then you're going to have to do the legwork... you won't find indemnity policies on price comparison sites. That is unless you decide to go through a house repayments broker or financial adviser.
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The buyer is usually the one to buy an indemnity insurance policy, however that's not to say sellers are exempt.
You see, the main difference between a standard insurance policy and one used for indemnity is that it applies to the property, not the buyer. In some cases indemnity insurance can even be passed on to subsequent owners - an added bonus for a buyer. Exactly why as a seller, you may also choose to invest in indemnity insurance.
Buy indemnity cover for a property you're selling and it not only reassures a buyer, but it also reduces the likelihood of any unforeseen issues causing them to pull out. Basically, it's a sign that (A) you're honest and (B) you're kind hearted. Both characteristics that should make you and your property far more attractive to buyers.
While indemnity insurance is certainly a useful tool for giving buyers that extra nudge, as well as boosting your position, it's not always necessary. Ultimately how necessary comes down to what you're looking to get out of a property sale, as well as what you're selling.
What type of property are you listing? How much genuine interest do you have? And, how fast you wish to complete? Only when you have answers to all these questions can you make any sort of valid judgement.
For instance, if you answer 'anything but', 'a decent amount' and 'no - not really', indemnity inurance is likely not going to be much help. Whereas if you answer 'average', 'not much' and 'fast', then indemnity insurance could be the way to go. Reason being that having it can encourage interest in your property and lead to that all-important faster sale. In terms of average sized homes, it can also work particularly well as an incentive, although that does depend on its value.
NOTE: Spending £500 to sell a house worth £50k perhaps isn't the wisest idea. However spending a similar amount to sell a house that's worth £500k, could make more sense.
Saying that though, unless you're struggling to sell because of legal or structural issues, we'd say that indemnity insurance isn't really the way to go. Not only is it an added cost for you as a buyer, but there's also no guarantee that it will attract the attention you're after. However, that's not to say there isn't another way...
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As with everything, when it comes to selling your house there's no 'right' way to go about it. For some, using building indemnity insurance to gain a buyer's trust may be a valid strategy. Whereas for others, doing so may actually make very little financial sense or still not meet the mark in terms of timescale. So, with that in mind, here's a couple of other faster options for you to consider...
NOTE: Both of these options will not require you to incur the cost of indemnity insurance.
Take a trip to the auctioneers - Methods of selling a house don't get much swifter than an auction. Schedule your house to go under the hammer and it could be in the hands of another buyer that very same day. At auction, contracts exchange on the day the property is sold, opposed to the months of waiting you get with estate agents. A handy perk if you ask us.
However, there is a cost to all this swiftness. Auction fees aren't exactly cheap, neither are they one cost - note the (s) at the end of 'fees'. You'll be charged to enter your property into the sale, to market it before and even have a hefty commission to pay on the sale price. All when there's no guarantee of a sale (much like with an agent), because you'd be selling through the open market, so would be purely reliant on demand. Therefore, the price you achieve at auction could be a LOT less than you'd hoped (gulp)!
- Opt for a 'Sell House Fast' company - If for whatever reason, the unpredictability of the open market isn't to your liking, then you may want to try your luck with a cash buying company. These are companies who will guarantee to buy your property for a cash lump sum. Take us for instance...
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