Buildings insurance from the date of exchange?

aix

We are buying a house. The solicitors are currently negotiating the contract. Seller's solicitors want to include a clause to make me responsible for buildings insurance from the date of exchange rather than completion. I understand this also transfers the risk to me: should the house get damaged or destroyed between exchange and completion, I'll have to make a claim on the insurance policy. However, if the damage is serious, the mortgage lender is unlikely to release the money, which will make it impossible for me to complete. I'll therefore be forced to breach contract, will get sued, etc.

This sounds like a small, but potentially very serious risk.

Is this common practice? From where I stand, this does not sound like a good idea at all.

danuk

yeah its common to have buildings insurance from exchange in facr most lenders insist on it.... the lenders want to know its covered so paying up would not be an issue.

I have just set mine up from exchange too which then covers the new house and my old one until i move out.

hope that helps

aix

Thanks for this. Having a buildings insurance is indeed a condition of our mortgage. However, our lender does not insist on having buildings insurance from exchange rather than completion. This is something that vendor's solicitors are proposing.

Our solicitor is of the opinion that, should be house burn down between exchange and completion, the lender is unlikely to release the funds (the mortgage will not have started by then!) I had a look at the mortgage offer this morning, and it states that the bank reserves the right to withdraw the offer at any time "if something happens which, in our view, would make it undesirable for the loan to be made".

This only reinforces my opinion that this sounds like a bad idea.

brock-cruse

Hi aix
yes it is the norm to have building insurance on exchange. But then it should also be insured by the vendor. Not sure who would pay tho! At exchange the house is not actually fully yours....as you could still pull out and you would forfeit deposit (not that i am saying you would of course as there is potential to sue etc!!)....so my thinking is that if it burned down your insurance would cover a proportion of it (maybe the deposit?) whilst the vendors should cover the rest as they are legally still the owner???!! Interesting point though...anyone know???

Amitoocautious

We are getting our mortgage from Britannia and have taken out building and contents insurance with them and that covers us from exchange. However, we do not have to pay anything until we complete as they cover from exchange for free

Worried

We have to arrange buildings insurance from exchange as a condition of the mortgage. I have had a quote that I'm going to go with. We have now had the purchase contract to sign and the solicitor thinks we will be ready to exchange within the next week or two. Should I go ahead and arrange the buildings cover now? I do not have a definite date for exchange. I am paying the premium in a lump sum, so don't want to pay it before exchange incase it falls through. What do I do?

bunking_off

Insurance from exchange of contracts is indeed the norm so nothing to be worried about.

It's always struck me as strange, however. Surely the contract is to deliver e.g. a 3 bedroomed house at completion, rather than the smouldering wreck should the place burn down in the meantime? Still, I suppose the money involved is miniscule on the greater scheme of things.

aix

bunking_off wrote: »

Still, I suppose the money involved is miniscule on the greater scheme of things.

I don't mind paying for the insurance as the extra premuim is indeed small. However, the point that my solicitor is making is that with the buildings insurance comes the transfer of risk (this could have something to do with how our particular contract is worded).

• If buildings insurance starts at exchange, and the house burns down between exchange and completion, we have to complete. If the damage is severe, the lender is likely to withdraw the offer, which would force me to breach contract as I won't have the cash to pay on completion date. The vendor would then go to court to force me to complete.
• If buildings insurance starts at completion, and the house burns down between exchange and completion, we can chose to withdraw from the transaction (not sure what happens to the deposit if we withdraw).