The purpose of Home Buyers’ Protection Insurance is to safeguard purchasers of a home, as well as the money they have invested in the transaction. It’s important to remember that the expenditures associated with purchasing a property stretch far beyond the initial deposit. How much do you lose if the deal falls through after you’ve paid for the survey and conveyancing fees?

With Home Buyers’ Protection Insurance, you may be able to recuperate part of the money you spent on the purchase. Here, you can learn more about what this insurance covers and whether or not it’s worthwhile.

How do the risks of a failed purchase stack up?

When it comes to the number of home purchasers that fall through before completion, the statics vary, but we can safely say that about 32% fail prior to completion, in England and Wales. Likely as a result of the pandemic, in 2020, 306,198 property sales were reported, which was a 12% increase compared to 2019.

Typically, there are a multitude of reasons why a sale can fall through, such as a seller changing their mind or a problem that has been flagged up in the survey report. Gazumping has been estimated to be the cause of about 25% of the failed sales. Additionally, about a quarter of sales fall through because the buyer failed to obtain a mortgage from a lender. In sum, here are the main reasons why a sale can fall through before completion:

• Gazumping
• Break in the property chain
• changed of the seller’s mind.
• Problems flagged by the survey
• Failed to secure a mortgage from a lender

Gazumping

Gazumping is when a buyer’s offer has been accepted by the seller, but the seller then changes their mind and goes with another buyer, after being offered a higher offer. In England and Wales, gazumping is legal, so buyers need to be aware that this can happen to them. If a failed buyer has been gazumped, they will not only lose the property that they dreamed of buying, but also the money spent on mortgage and conveyancing fees, as well as surveying costs. 

Break in the property chain

They say that a chain is only as strong as its weakest link; in property sales, this is very true. The term “property chain” refers to a line of buyers and sellers whose property transactions are intertwined. Delays can have a ripple effect across the entire chain and potentially result in a loss of sales. The failure of a sale in one area of the chain might have a domino effect on the rest of the chain.

Changed on mind from the seller

It sometimes happens that a seller will change their mind about selling up, and this will leave the unfortunate buyer back at square one looking for a new home to buy. Sometimes, this means you have incurred costs and fees that you have already paid out on.

Problems flagged by the survey

If a survey flags up a serious concern for the buyer that was not picked up from a quick visual inspection, and a price re-negotiation cannot be made successfully, the buyer may well pull out. There are numerous things that could be flagged, such as roof damage, damp, or subsidence. 

Failed to secure a mortgage from a lender

You may be surprised to learn that, even if a potential buyer has secured a Mortgage in Principle from a lender, they may still fail to obtain a mortgage for some reason. In most cases, without a mortgage to fund the purchase, the sale cannot proceed as hoped.

What is the cost of Home Buyer’s protection insurance?

The Home Buyer’s Protection insurance consists of a single payment and the price will depend on the company offering it. However, as a rough estimate, you can expect to pay somewhere between £50 and £100 for the insurance. This is a reasonable cost given what expenses are involved in buying a home and the percentage of sales that fall through each year.

What does the insurance cover?

If the purchase does not go through after you’ve paid for your legal fees, survey and valuation charges, and mortgage fees, Home Buyers’ Protection Insurance will cover part of these costs. If the seller backs out of the deal, or if you are gazumped, you are protected.

If you decide to take out the insurance protection, you need to be aware that there will likely be limits to the amount you can claim back in the event of financial loss. You will need to check with the insurance provider, but some will cover conveyancing up to £750, mortgage fees up to £250 and survey valuation fees up to £500.

Please note that it won’t likely cover any costs that were paid out prior to the insurance policy being put in place.