Will Mortgage Lender Accept Indemnity Insurance?
The answer to this question greatly depends on your lender. Local Authority Search Indemnity Insurance is a matter to research and discuss with your solicitor or the mortgage lender themselves. We can simply provide information regarding this topic.
Before asking ‘will the mortgage lender accept indemnity insurance?’ You should fully understand the purpose of a local authority search and the risks associated with not having one completed. Being equipped with all the available information can also bolster your argument in favour of an insurance policy when negotiating with mortgage lenders for their approval of indemnity insurance.
What is indemnity insurance?
In the context of property exchange, indemnity insurance is taken out against a specific potential problem that can occur during or as a result of property transaction. The policy aims to cover you financially should claims be made against you. To be clear, the insurance will not cover repairs or replacement costs, only the costs of a third party claiming financial charges against you.
Here’s a simple example to represent the concept. When performing their conveyancing checks, your solicitor may advise you to take out a building regulations indemnity insurance policy. The reason for this could be because the seller cannot provide a building regulation certificate. Building regulation completion certificates are required by local authorities to confirm that works meet the building regulations. If the local authorities were to make a claim against you based on the lack of certificate, your insurance policy would cover these costs. However, it would not cover the costs of remedial work required to amend unregulated or poor workmanship.
There are a range of issues that indemnity insurance can cover, your solicitor will recommend any that are necessary. They can cover issues in relation to planning permission, restrictive covenants, boilers and windows.
Consider the context of indemnity insurance
Indemnity insurances can have different purposes for buyers and sellers. As a buyer you may take out an indemnity insurance policy as instructed by your solicitor. This would be in an attempt to protect yourself from any future financial harm, as previously mentioned in the case of building regulations.
However, if your seller holds any indemnity insurance policies you should consider their context. For example, if the seller presents you with a boiler indemnity insurance certificate rather than an installation certificate, you shouldn’t always take this for face value. It would be best practice to request that the seller has a gas safety certificate provided to confirm the safety of the appliance.
Mortgage lenders also have access to indemnity insurance policies. They may be able to claim from an insurer if the price that you paid for a property is less than the provided mortgage amount. They would claim for their losses which could potentially provide the insurers subrogation rights. This would allow them to reclaim the money from you.
The important thing to consider is that there are plenty of uses of indemnity insurance that can have several implications depending on which side of the policy you are on.
Local authority searches and the Conveyancing Process
After making an offer on a house, you will instruct a solicitor to perform the conveyancing process. Within this a number of checks and searches are completed. The purpose of these checks is to ensure your financial security and uncover any unknown details about the property. They will include:
- A Land Registry search: To check legal ownership
- Drainage searches: To check for water damage
- Chancel repair liability: To see if you are eligible for payments to the church
- Environmental searches: To check for flood risks and ground stability
One of the key searches carried out by your solicitor is the Local Authority Search. Included within this search are details of planning permission, highway information, local land charges (which are costs that you are liable for), public rights of way and major developments that permitted to be built in the vicinity.
There is a lot of critical information to be included within the local authority search. This information cannot always be provided by the seller but may heavily influence your decision to purchase the property.
Mortgage lenders often request that the search is complete as part of the mortgage application. There is a very high risk that mortgage lenders will not accept indemnity insurance in exchange for the search. The results of the search inform risks of your investment but also the risks to the mortgage lenders investment.
Local Authority Search Indemnity Insurance
Without the information provided by local authority searches, buyers and lenders can be left naïve to urgent notifications regarding the local area. This could leave the property and its owners liable to planning works such as highways, public right of ways, building works and planning permissions.
For this reason, the check is often made compulsory by mortgage lenders. In some circumstances the mortgage funds will not be provided without evidence that the check has been completed by a licensed conveyancing solicitor.
So, is there a way to receive mortgage funds without having a local authority search completed?
Local authority search or ‘no search’ indemnity insurance was introduced to reduce the delays in property purchases as a result of the COVID-19 pandemic. Local authorities have struggled to provide the required information in a timely manner. This has left solicitors and buyers waiting as long as 40 days for search results.
An indemnity insurance policy covering ‘no search,’ insures the buyer and lender against a number of events. It will not cover all costs however, still leaving both parties at risk of any unknown outcomes.
Local Authority Search vs No Search
While this practice is becoming more common, you might consider the benefits and limitations of having a search completed. The alternative option is to skip the step and take out insurance instead.
One of the key advantages of the search is that it can give you information that can inform your decision to purchase the property. For many buyers, this can be critical. If you are aware of major planning which is due to occur in the near future, this might be a deterrent in moving to a certain area. It could mean the construction of a busy main road or major developments in the area. If these are deal breakers for you and you don’t receive the information, you won’t be doing yourself any favours.
On the other hand, the search can cost a few hundreds of pounds, adding to an already expensive conveyancing process. Quotes have been found for the search costing anywhere between £150 and £500 depending on who provides the information. The cost of insurance tends to be far lower, quoted between £85 and £130. If you are willing to take the risk, insurance can be a low-cost alternative.
Will you mortgage lender accept Local Authority Search Insurance?
Due to the delay in searches, many mortgage lenders have begun to accept no search indemnity insurance. This is in replacement of the search itself. Whilst the insurance cannot cover all risks and finical implications, your lender may accept the policy if they believe under most circumstances, you will be able to pay the loan back.
This decision is at the discretion of individual lenders and can greatly depend on your property. If the lender is concerned that you should ideally have a local authority search completed, they will probably be far less inclined to approve your mortgage application.
Overall, each case is specific to its circumstances. Whether or not to utilise insurance or have the search completed is down to your preference. Whether your mortgage lender will accept indemnity insurance in your application is to their discretion. There are key reasons why the local authority search is considered so critical. These factors will be included in your lenders decision to accept your indemnity insurance.
Before settling on your decision, you should be aware of your lenders decision. Always ensure there is enough time to have a local authority search completed if necessary. The insurance can prevent delays but the buyer should always consider the associated risks. Most importantly, be prepared for financial liabilities that are not covered by the insurance.