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Arranging home insurance may not be top of your list of priorities as you juggle the arrangements for your impending house move. Indeed, it’s a common misconception that insuring the property remains the seller’s responsibility until legal ownership changes on completion day.
House insurance on exchange of contracts
Before exchange of contracts, your conveyancing solicitor will ask you to sign the contract. In almost every case, that contract will be Law Society’s Standard Conditions of Sale (5th Edition), and you will find the specific conditions of scale, ie the terms of the contract, on pages 2 and 3.
Condition 5 states:
5.1.1 The property is at the risk of the buyer from the date of the contract
5.1.2 The seller is under no obligation to the buyer to insure the property unless:
(a) the contract provides that a policy effected by or for the seller and insuring the property or any part of it against liability for loss or damage is to continue in force, or
(b) the property or any part of it is let on terms under which the seller (whether as landlord or as tenant) is obliged to insure against loss or damage.
Buyers are often surprised when their conveyancing solicitor informs them that they must insure the property from exchange of contracts, even though the seller is still likely to be in occupation.
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Lender security
If something major happens to the property between exchange of contracts and completion, it’s not just you who stands to lose out. Your mortgage lender’s equity is not protected unless you put buildings’ insurance in place. If you arrange your cover through your lender, the policy will almost certainly cover the property from exchange of contracts.
Many home insurance policies contain a clause extending the benefit of cover to the buyer in the period between exchange of contracts and completion. However, this cover is only intended for the protection of the seller if the buyer has failed to take out insurance.
Price comparison
These days, we all routinely turn to price comparison websites for home insurance. But prospective homebuyers should exercise caution as it’s very easy to purchase a policy which does not cover the period before completion.