What is Home Buyers Protection Insurance?

Written by Adele MacGregor Reviewed by Gareth Brooks

19th Jul 2021 (Last updated on 19th Apr 2024) 8 minute read

How Does Home Buyers Protection Insurance Work?

Home buyers' protection insurance helps cover the cost of legal fees, surveying costs, and mortgage lending fees if your house purchase falls through. It is commonly known as Gazumping Insurance. The buyer is eligible to purchase Home Buyers Protection insurance. It’s important to note that Home Buyers Protection Insurance is not the same as Indemnity Insurance.

This insurance will help to prevent you from financial loss if your purchase falls through. For example, some insurance providers will cover conveyancing fees up to £750, mortgage fees up to £250 and survey or valuation fees up to £500.

It’s useful to know in this instance that you can claim part or all of your money back. Be aware that there may be limits on the amount you can claim back.

What is the Cost of Home Buyers’ Protection Insurance?

You can expect to pay in the region of £74 standard cover according to Rhino Home Protect. Premium protection costs around £144.

Standard cover will protect your funds up to a certain amount. Premium or comprehensive coverage is more expensive but will protect you for a larger sum of money. Be aware that the insurance may not cover the total amount you have spent. Prices will also vary between insurance companies.

What the Home Buyers Protection Insurance includes will depend on the provider. They will likely cover the following:

• Conveyancing fees
• Survey fees
• Mortgage arrangement fees
• Legal fees

Home Buyers protection insurance is a one-off premium. This means you pay for the insurance in one payment which will cover you for the duration of the policy.

What is the cost of a property purchase falling through?

If your property purchase falls through then you can expect to pay an average of £1,315 as a seller. Buyers tend to have to pay slightly more at around £1,655.

Some conveyancing solicitors will have a No Sale No Fee guarantee. This means you won’t have to pay any solicitor’s fees if the sale falls through. However, you will still be required to pay conveyancing disbursements. This can include conveyancing searches and Land Registry Fees.

How Often Do Purchases Fall Through?

Over a third (35%) of all property sales fell through in the UK according to Quick Move Now. There are several reasons why a property sale might fall through, from a seller changing their mind to an issue on the property survey.

Quick Move Now reported that in 2023 the buyer changing their mind, withdrawing, or trying to negotiate the sale price attributed to 49% of sales falling through. The second highest reason was a break in the property chain at 19%.

Here are the main reasons why a property purchase might collapse before completion:

A Break in the Property Chain

A property chain is a line, or “chain” of buyers and sellers linked together. Their property transactions depend on each other to complete the house-buying process. Delays in the chain are common and can impact the entire chain, especially when it comes to each completion day. A break or sale falling through in one part of the chain can also cause other sales to fall through and collapse the chain.

Gazumping

Gazumping is when a seller initially accepts a buyer’s offer, but then later accepts another from a different buyer. This is typically due to the second offer being higher than the initial.

While considered unethical, Gazumping is legal in England, Wales and Northern Ireland. While it’s still legal in Scotland, there are protocols in place to make it more difficult. Before the Conclusion of Missives, a buyer or seller can pull out of a sale. After missives have been completed, neither can legally pull out of the sale.

Seller or Buyer Changes Their Mind

Sometimes the seller can simply change their mind about selling the property and withdraw from the sale. This then leaves potential buyers back at square one often with money lost depending on how far they were into the process.

In addition to this, a buyer may decide that the property purchase is no longer something they are interested in. Other reasons, such as a change in job or a family bereavement could cause a person to pull out of the sale.

Issues Found in Survey Report

Survey reports are an important part of the house-buying process. They help to highlight any areas of concern with the internal and external areas of your property. If a serious or costly issue is highlighted in the report, a buyer may pull out of buying a house. The sale will then collapse. Common reasons include infestation of Japanese Knotweed or a severe case of damp.

Difficulty Securing a Mortgage

Having a mortgage agreed and secured by a mortgage lender is an essential part of the house-buying process. A prospective buyer can be denied a mortgage even if they have a Mortgage in Principle. This is why it’s important to seek assistance from a mortgage adviser. A buyer needs to have a mortgage arrangement in place for the house sale to complete unless the home is being purchased outright.

Price Negotiation Failures

Many buyers will try to renegotiate a house price after a bad survey. While this can be accepted, the buyer can choose to decline the price negotiation. In this instance, the sale will then fall through.

Delays in the Conveyancing Process

The conveyancing process takes roughly between 8 to 12 weeks. However, if the property is complex, or there are delays with conveyancing searches and survey results, the process can take longer.

While pressure can be placed on your solicitor to speed up the process, this is not always possible. If the process is taking too long, a buyer may decide to pull out of the sale.

Read more on: How long does conveyancing take?

Home Buyers Protection Insurance vs Homeowners Insurance

While these two insurance terms sound similar, they cover very different things. The Home Buyers Protection Insurance covers your fees when purchasing a house. Homeowners Insurance covers your property and your personal belongings.

These two insurance types are needed at different stages of purchasing and owning a home. You won’t need to take our Homeowners Insurance until the exchange of contracts and have completed your house sale.

Benefits of Home Buyers Protection Insurance

The biggest benefit of having Home Buyers Protection Insurance is that most of the fees you have paid will be covered. This helps you to lose as little money as possible if your house purchase were to fall through.

Home Buyers Protection Insurance covers some mortgage fees, conveyancing fees, surveying fees and valuation costs. This is if you have a failed purchase. Many companies offer insurance plans that are tailored specifically to your needs.

The housing market is becoming increasingly uncertain, especially due to its rising costs and the increase in the cost of living. Home Buyers Protection Insurance provides peace of mind and financial coverage.

Home Buyers Protection Insurance Restrictions

Policies will differ between insurance companies. Generally, the Home Buyers Protection Insurance will not cover any costs paid out before the policy was in place.

You will not be covered if you change your mind about buying the property. Policies will only cover events outside of your control that cause the sale to collapse.

Here are some caveats to keep in mind with this insurance:

• You must not have had a survey on the property before the policy start date
• You cannot pull out of the property sale for reasons that do not meet the criteria of your policy. For example, changing your mind
• You must have instructed a solicitor or licensed conveyancer
• The property purchase must not be subject to a contract race of sealed bids
• The insurance is not valid if you knew the purchase would not be completed before taking out the policy
• You cannot volunteer to take redundancy during this time

How to Buy Home Buyers Protection Insurance

The best way to purchase Home Buyers Protection Insurance is to contact the insurance companies directly. They will then be able to provide you with a quote and what their insurance covers specifically. You can also use comparison websites to find the best quote for your specific needs.

Learn More About Conveyancing

This is part of our conveyancing guide. In our next article, we take a look at conveyancing options online. To learn more read what is online conveyancing.