New build house insurance from exchange

Aretnap

user1977 said:

Smithcom said:

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

But the lender isn't a party to the contract, and is not obliged (or likely) to hand over the loan funds if the property is now a smouldering ruin.

The lender will already have done its valuation and agreed to hand over the money to fund the purchase by that stage though.

It's some time since I read a mortgage contract, but do they typically give the lender the right to back out if the condition of the property deteriorates between exchange and completion? If so, what amount of damage would be necessary to allow the lender to back out? House burnt to the ground? One room gutted? Some roof tiles fallen off? A broken window?

I'm willing to be persuaded otherwise, but I'd have thought that by completion the lender is committed to fund the purchase just as the buyer is committed to buy the property. Which would mean the lender certainly does have an interest in the property being insured. 

user1977

Aretnap said:

user1977 said:

Smithcom said:

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

But the lender isn't a party to the contract, and is not obliged (or likely) to hand over the loan funds if the property is now a smouldering ruin.

The lender will already have done its valuation and agreed to hand over the money to fund the purchase by that stage though.

It's some time since I read a mortgage contract, but do they typically give the lender the right to back out if the condition of the property deteriorates between exchange and completion? If so, what amount of damage would be necessary to allow the lender to back out? House burnt to the ground? One room gutted? Some roof tiles fallen off? A broken window?

I'm willing to be persuaded otherwise, but I'd have thought that by completion the lender is committed to fund the purchase just as the buyer is committed to buy the property. Which would mean the lender certainly does have an interest in the property being insured. 

Lenders invariably reserve the right to withdraw mortgage offers for a variety of reasons, it isn't an irrevocable promise that the loan funds will be forthcoming. I don't see why the property suffering significant damage would be any different from, say, the borrower becoming at risk of redundancy.

From https://www.moneysupermarket.com/mortgages/mortgage-offers/

"Can a mortgage offer be withdrawn?

Your mortgage lender can choose to withdraw your mortgage offer if your circumstances change once the offer is made. Changes that could result in a mortgage offer being withdrawn include:

• You losing your job

• You becoming unable to work due to ill health

• The property losing value"

Smithcom

user1977 said:

Smithcom said:

user1977 said:

Smithcom said:

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

But the lender isn't a party to the contract, and is not obliged (or likely) to hand over the loan funds if the property is now a smouldering ruin.

Are you seriously saying that insurance should only be in place from completion?   (assuming not a new build)

Where did I suggest that? I'm saying that the lender is a red herring here - whatever happens between exchange and completion is nothing to do with them. The lender will certainly want insurance to be in place at least from completion - but they'll also expect an intact property.

You certainly implied it with your statement:

'It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion'

user1977

Smithcom said:

user1977 said:

Smithcom said:

user1977 said:

Smithcom said:

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

But the lender isn't a party to the contract, and is not obliged (or likely) to hand over the loan funds if the property is now a smouldering ruin.

Are you seriously saying that insurance should only be in place from completion?   (assuming not a new build)

Where did I suggest that? I'm saying that the lender is a red herring here - whatever happens between exchange and completion is nothing to do with them. The lender will certainly want insurance to be in place at least from completion - but they'll also expect an intact property.

You certainly implied it with your statement:

'It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion'

From the point of view of the lender. What happens between exchange and completion isn't their problem, so why would they care whether insurance was in place at exchange? I would expect them to say the insurance should be in place from completion.

That is after all what the UK Lenders Handbook (i.e. the standard set of solicitors instructions) says:

"6.14 Insurance

6.14.1 You must make reasonable enquiries to satisfy yourself that buildings insurance has been arranged for the property from no later than completion.

You should remind the borrower that they:

• Must have buildings insurance in accordance with the requirements of the mortgage contract no later than completion, and
• Must maintain such buildings insurance throughout the mortgage term."

kingstreet

In the event of a pre-completion total loss, the solicitor (acting for purchaser and lender) would be unable to submit a certificate of clean and unencumbered title; so the mortgage offer would simply expire.

Who carries the risk between exchange and completion is determined by the version of the Standard Conditions of Sale used by the Conveyancer. IIRC 4th edition leaves risk with vendor while 5th has purchaser accept risk.

As has been agreed, the builder retains the risk on a newbuild between exchange and completion.

Aretnap

user1977 said:

Aretnap said:

user1977 said:

Smithcom said:

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

But the lender isn't a party to the contract, and is not obliged (or likely) to hand over the loan funds if the property is now a smouldering ruin.

The lender will already have done its valuation and agreed to hand over the money to fund the purchase by that stage though.

It's some time since I read a mortgage contract, but do they typically give the lender the right to back out if the condition of the property deteriorates between exchange and completion? If so, what amount of damage would be necessary to allow the lender to back out? House burnt to the ground? One room gutted? Some roof tiles fallen off? A broken window?

I'm willing to be persuaded otherwise, but I'd have thought that by completion the lender is committed to fund the purchase just as the buyer is committed to buy the property. Which would mean the lender certainly does have an interest in the property being insured. 

Lenders invariably reserve the right to withdraw mortgage offers for a variety of reasons, it isn't an irrevocable promise that the loan funds will be forthcoming. I don't see why the property suffering significant damage would be any different from, say, the borrower becoming at risk of redundancy.

From https://www.moneysupermarket.com/mortgages/mortgage-offers/

"Can a mortgage offer be withdrawn?

Your mortgage lender can choose to withdraw your mortgage offer if your circumstances change once the offer is made. Changes that could result in a mortgage offer being withdrawn include:

• You losing your job

• You becoming unable to work due to ill health

• The property losing value"

Cheers, I hadn't been aware of that. It does seem to leave the buyer at a significant risk, entering a binding contract to buy the property without the certainty that they'll have the funds in place to complete.

From a consumer point of view it would seem better if the lender were bound from at least exchange of contracts as well. For lenders the consequences of the house burning down just before completion would be no worse than it burning down after completion, which is a problem that they deal with all the time, so it's not as if the banks would be having to take on an inordinate amount of extra risk. 

Smithcom

Aretnap said:

user1977 said:

Aretnap said:

user1977 said:

Smithcom said:

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

But the lender isn't a party to the contract, and is not obliged (or likely) to hand over the loan funds if the property is now a smouldering ruin.

The lender will already have done its valuation and agreed to hand over the money to fund the purchase by that stage though.

It's some time since I read a mortgage contract, but do they typically give the lender the right to back out if the condition of the property deteriorates between exchange and completion? If so, what amount of damage would be necessary to allow the lender to back out? House burnt to the ground? One room gutted? Some roof tiles fallen off? A broken window?

I'm willing to be persuaded otherwise, but I'd have thought that by completion the lender is committed to fund the purchase just as the buyer is committed to buy the property. Which would mean the lender certainly does have an interest in the property being insured. 

Lenders invariably reserve the right to withdraw mortgage offers for a variety of reasons, it isn't an irrevocable promise that the loan funds will be forthcoming. I don't see why the property suffering significant damage would be any different from, say, the borrower becoming at risk of redundancy.

From https://www.moneysupermarket.com/mortgages/mortgage-offers/

"Can a mortgage offer be withdrawn?

Your mortgage lender can choose to withdraw your mortgage offer if your circumstances change once the offer is made. Changes that could result in a mortgage offer being withdrawn include:

• You losing your job

• You becoming unable to work due to ill health

• The property losing value"

Cheers, I hadn't been aware of that. It does seem to leave the buyer at a significant risk, entering a binding contract to buy the property without the certainty that they'll have the funds in place to complete.

From a consumer point of view it would seem better if the lender were bound from at least exchange of contracts as well. For lenders the consequences of the house burning down just before completion would be no worse than it burning down after completion, which is a problem that they deal with all the time, so it's not as if the banks would be having to take on an inordinate amount of extra risk. 

If the bank said that 'the house must be insured from completion', this would give the impression that there is no risk to the borrower from exchange, which of course there is.

Perhaps they insist on insurance from exchange as to avoid misleading the borrower.

user1977 I take your point, but regardless of how little interest that you think the lender has between exchange and completion, it's fairly irrelevant if it's a condition of the mortgage offer.

SC