House insurance on exchange of contracts

Arranging home insurance may not be at the top of your 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. But here’s why it’s crucial to arrange house insurance on exchange of contracts.

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 the Law Society’s Standard Conditions of Sale (5th Edition). You will find the specific conditions of sale, i.e. 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 told they must insure the property from exchange of contracts, even if the seller remains in occupation. The standard conditions also cover the position if both parties have insurance in place between exchange and completion.

Lender security

If something significant happens to the property between exchange of contracts and completion, it’s not just you who stands to lose. 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 inevitably 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 to protect the seller if the buyer fails 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. That’s because it’s very easy to purchase a policy that does not cover the period before completion. Remember, many companies offer specialist temporary home insurance between exchange and completion.