Unnecessary Vendor Insolvency Insurance

dory2_2

Mortgage lenders require purchasers to buy Vendor Insolvency Insurance because the Insolvency Act 1986 states that if an "individual enters into a transaction with a person at an undervalue" and subsequently becomes bankrupt, then a court can effectively reverse that transaction. If the trustee in bankruptcy claws back the whole value of the property then the insurance company will pay the mortgage lender the money they are owed. I understand how this works in the vast majority of cases where the vendor sells 100% of the property. However, I am only buying 66% of a property.

My brother, sister and I have each inherited one third of our parents' house. I am buying them out so that I will own all of it. I need to borrow £60,000 to do this but the lender is insisting that I pay £222 for Vendor Insolvency Insurance. But the third of the property that I inherited is worth more than double the value of the loan, so even if both my siblings become insolvent and their two-thirds of the property is clawed back, the loan is still not at risk. I have asked my solicitor to get this worthless requirement waived, but she says " I appreciate what you say about risk however this is a lenders requirement and there is no way around it. [The lender] will not waive this requirement, nor meet the cost of the premium and this is something that you will have to meet."

Even if all three of us become insolvent the mortgage lender would still have all the insurance it needs: the deeds to the house! Can anybody imagine a scenario in which, in my case, this insurance would ever be needed?

foxy-stoat

Either find another lender who doesnt require the £222 or just pay it. As you have inherited thousands of pounds this would be a small price to pay, and a very small amount in terms of home ownership.

The solicitor is advising you, you should be taking their advice.

dory2_2

Thanks for that voice of realism. It's sometimes hard to know where the boundary between principle and pragmatism lies. If you think that £222 is a small amount then I'm pleased for you, but I only get minimum wage so I'll have to work for 30 hours to earn it. That's a lot of labour for worthless insurance.

Shakin_Steve

You're on minimum wage yet someone is willing to lend you £60000?

Nearlyold

This seems to be one of those posts where the OP should really tell folks in the first post what it is that he/she wants the replies to say.

DCFC79

dory2 wrote: »

Mortgage lenders require purchasers to buy Vendor Insolvency Insurance because the Insolvency Act 1986 states that if an "individual enters into a transaction with a person at an undervalue" and subsequently becomes bankrupt, then a court can effectively reverse that transaction. If the trustee in bankruptcy claws back the whole value of the property then the insurance company will pay the mortgage lender the money they are owed. I understand how this works in the vast majority of cases where the vendor sells 100% of the property. However, I am only buying 66% of a property.

My brother, sister and I have each inherited one third of our parents' house. I am buying them out so that I will own all of it. I need to borrow £60,000 to do this but the lender is insisting that I pay £222 for Vendor Insolvency Insurance. But the third of the property that I inherited is worth more than double the value of the loan, so even if both my siblings become insolvent and their two-thirds of the property is clawed back, the loan is still not at risk. I have asked my solicitor to get this worthless requirement waived, but she says " I appreciate what you say about risk however this is a lenders requirement and there is no way around it. [The lender] will not waive this requirement, nor meet the cost of the premium and this is something that you will have to meet."

Even if all three of us become insolvent the mortgage lender would still have all the insurance it needs: the deeds to the house! Can anybody imagine a scenario in which, in my case, this insurance would ever be needed?

Nearlyold wrote: »

This seems to be one of those posts where the OP should really tell folks in the first post what it is that he/she wants the replies to say.

Do you think we should get the popcorn sorted ?

leespot

Minimum wage, a property worth over £360k, and you're only borrowing 60k to buy the place? They're being very generous to you accepting such a low buyout, swallow the £222 and get on with it.

dory2_2

I did specify what I want the replies to say. I want to know if anybody can think of any possible scenario in which this insurance would pay out. So far nobody has come up with one.

leespot

It doesn't matter though does it - you won't get the mortgage with this lender unless you pay for the policy! If you're not happy find a new lender.

bearcat16

Lenders can ask almost anything if you want to borrow them. They could ask you to dance naked down the high street as a condition of the loan if they wanted to. Nobody has a right to borrow money, so if you don't like any of the lenders requirements then either find another lender or just forget the loan.

An acquaintance once asked me for a £2,000 loan. I asked what it was for, and was told "I don't think you have the right to ask me that". Needless to say, no loan was given. (Turned out to be a holiday to South Africa)

foxy-stoat

dory2 wrote: »

Even if all three of us become insolvent the mortgage lender would still have all the insurance it needs: the deeds to the house! Can anybody imagine a scenario in which, in my case, this insurance would ever be needed?

And the cost and time to reverse the transaction, apply to the courts to remove you from the property, the cost to defend your inevitable defense of such an action, cost to actally remove you, market and sell the property and finally get paid....many years and many thousands of pounds...or they can just claim on the insurance they require before agreeing to lend. I know which option I would choose.

If you think £222 is a lot of money in property ownership terms then I wouldn't buy this property just ask the other siblings to buy you out or sell it, as the cost of property ownership will be too much for you.

Buildings Insurance for me is around £200 a year on a £200,000 house, I do not believe for 1 minute that I would ever need to claim on this policy but I wouldnt dream of getting into negociations with my lender that buildings insurance is worthless and refused to pay it.

Just pay it and enjoy your home.