What Is Indemnity Insurance When Buying a House in the UK?

When buying a house, your solicitor may raise the subject of indemnity insurance. For many buyers, this can be confusing, as it is not the same as buildings insurance or contents insurance. Indemnity insurance is a specialist type of legal cover designed to protect you and your lender against certain risks that could cause financial loss after the purchase. It does not fix a problem but provides financial protection if an issue arises in the future.

What Indemnity Insurance Covers

Indemnity insurance is commonly used to cover legal or administrative defects in a property’s history. Examples include missing planning permission for alterations, lack of building regulation sign-off, missing deeds, or rights of way issues. If a third party later challenges the defect, the policy covers the cost of defending your ownership or paying compensation. The cover is usually a one-off policy taken out during the conveyancing process and lasts indefinitely, protecting both you and future owners.

Why It Is Used

The purpose of indemnity insurance is to avoid delays in the property transaction. If your solicitor discovers that, for example, a loft conversion was built without the proper paperwork, applying for retrospective approval can take time and may not always be possible. An indemnity policy allows the sale to proceed, as it satisfies the mortgage lender’s concerns and gives the buyer reassurance. It is a practical solution when resolving the issue directly would be complex or costly.

What It Does Not Do

It is important to understand that indemnity insurance does not correct the underlying problem. If a property has unauthorised alterations, the work remains unauthorised even if you are insured. The policy simply protects you from financial loss if the local authority or another party takes action. It also does not cover issues you create after purchase, only existing defects that were identified during conveyancing.

Who Pays for It

The cost of indemnity insurance varies depending on the risk and the property’s value, but policies typically range from £20 to several hundred pounds. In many cases, the seller pays for the policy as a condition of the sale, particularly if the defect is linked to something they failed to resolve. However, this is negotiable, and sometimes the buyer is asked to cover the cost.

Mortgage Lenders and Indemnity Insurance

Mortgage lenders often insist on indemnity insurance if a defect is identified. They want to ensure their security in the property is protected against legal risks. Without a policy in place, a lender may refuse to proceed with the mortgage offer, so indemnity insurance can be essential to keeping a transaction on track.

Should Buyers Worry About It?

For most buyers, indemnity insurance is a practical solution rather than a reason to worry. These policies are common, widely accepted by lenders, and provide reassurance that unexpected costs will be covered. However, you should always read the terms carefully and discuss with your solicitor what exactly is being insured. If the defect is significant, such as missing structural approvals, you may also want to consider whether it could affect the property’s value or future saleability.

Final Thoughts

Indemnity insurance when buying a house is a legal safeguard against risks linked to missing paperwork or historic property defects. It does not fix the issue but offers financial protection if problems arise later. Most policies are inexpensive, last indefinitely, and are acceptable to lenders, making them a useful tool to avoid delays in the conveyancing process. While buyers should understand the limits of cover, indemnity insurance is usually nothing to fear and can smooth the path to completing a purchase.