More house sellers are being persuaded to buy insurance cover just to get the sale moving.
By Jessica Winch
Jo and Ian Rimmer were in the process of moving house when their buyers' solicitor raised an unexpected concern.
The couple, from Dorset, were asked to pay about £300 for an insurance policy to cover some information missing from their property deeds.
This type of policy is known as indemnity insurance, which is becoming an increasingly common factor in house sales despite very few people claiming on the policies.
For the Rimmers, the problem was a missing document dating from 1945, when the house was still being built. The deeds mentioned a restrictive covenant – a promise not to do certain things with the land or the property, such as keeping a caravan – but provided no further detail on what it covered.
The house was first sold in 1946 and the couple have complete deeds from this point, but the missing document was seen as a risk.
"It was completely ridiculous," said Jo Rimmer, 53. "Nobody knows what the covenant refers to; we were asked to pay hundreds of pounds for an unspecified risk."
She said: "We bought the house 12 years' ago and nobody mentioned indemnity insurance then.
"My solicitor didn't think there was any reason to have the policy because it was impossible to know who could take action. But to get the sale moving, it just seemed easier."
Jonathan Smithers, a property law expert and vice president of the Law Society, said this situation was becoming increasingly common.
"We certainly come across indemnity insurance policies a lot more than we used to," he said, "and there are risks being covered that used not to exist."
The most common types of indemnity insurance are planning permission and building regulation indemnity, where a local authority might seek to enforce breaches of planning regulations.
The third main type is a restrictive covenant policy, where, for example, documents on a house state the owner should not build an extension without permission but the previous owners have gone ahead anyway.
One relatively new risk that has entered the playing field, said Mr Smithers, was concealed development risk, where an extension might have slightly exceeded the planning rules.
"I think most people would say that it is not proportionate," he said. "In my experience, claims are rare.
"But people are more willing to take action now if they think there is a problem and the cost of advice is relatively high. Indemnity policies are seen as a relatively cheap way of managing the risk."
It is also occasionally a condition of a mortgage lender, although the Council of Mortgage Lenders said it was not "routinely required". A spokeswoman said: "Lenders rely on conveyancers to protect their interests and address property-related risks that might otherwise compromise the lender's security.
"Indemnity insurance, while not routinely required, can be a useful way of dealing with certain situations … where specific factors might otherwise pose a risk."
Unlike a standard insurance premium, an indemnity policy is a one-off payment that can last for decades.
The cost is worked out by insurers based on the value of the property and the nature of the risk involved. Typical premiums range from £100 to £400. A particular sticking point is who should pay for the policy.
The British Insurance Brokers' Association (Biba) insisted that the buyer of the property should buy the cover.
"If a solicitor says that without the indemnity insurance a sale will not go through, a seller may well cave in and decide to pay," said Steve Foulsham, head of technical services at Biba. "But in my opinion the buyers should pay for it, as they are the ones who will get the benefit from it."
Mr Foulsham said: "Maybe the way forward it to have discussions with the Law Society about the future administration of the policy and how the cover is best provided for those that need it."
Mr Smithers said making rules on who should pay would change the balance of negotiating power. "It is a negotiating point," he said, "and it is not the place of the conveyance solicitor to unbalance the negotiating power of the buyer or seller in an open market."
Jo and Ian Rimmer concluded their sale by agreeing to split the cost of the indemnity insurance policy with the new buyers. "It seemed easier," said Mrs Rimmer, "but there should be a 'common sense check' on the whole process.
"There may be circumstances where it is worth having an indemnity policy, but I think there should be more help given to consumers to help them understand when it is necessary.
"The process plays on people's paranoia during a stressful time and I don't think that is right."
Mr Smithers said: "As we learn more and lenders adjust their rules, it may be that we won't have to recall to such policies."
He advised home owners to view a request for indemnity insurance "in the round" and include it as part of the negotiations in a house sale.
Mr Smithers also said it was vital to use a trusted solicitor with local knowledge who can advise a homeowner on the risks involved. "If you are not sure ask people nearby who have moved; ask the surveyor; ask the estate agency," he said. "Finding a conveyor is not like buying a loaf of bread at the supermarket, it is a process where you need a trusted adviser."
Source: The Telegraph
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