What is Search Indemnity Insurance?

When you're buying a property in the UK, there's a lot more to think about than just the price. One of the key parts of the conveyancing process is carrying out searches.

These searches look at a range of factors, such as local planning applications, environmental risks, and whether the property has any legal or financial restrictions. While waiting for these searches to come back, however, can sometimes cause delays. This is where search indemnity insurance comes in.

Search indemnity insurance (also called no search indemnity) allows a property transaction to go ahead even if some or all searches haven’t been completed. It provides protection for the buyer and lender (if there’s a mortgage involved) in case any issues arise that would have been identified by those searches.

Let’s dive deeper into search indemnity insurance, when it’s used, and the risks and benefits involved.

Why Are Property Searches Needed?

Property searches are carried out by the buyer’s solicitor or conveyancer. These searches check for things that could affect the property or its value, and they usually fall into three main categories:

• Local Authority Search – This checks for local planning decisions, nearby developments, restrictions on the property, and legal charges.

• Environmental Search – This highlights any environmental risks, such as flood zones, contaminated land, or subsidence.

• Water and Drainage Search – This ensures the property is connected to the public water supply and drainage system, and identifies who owns and maintains the pipes.

These searches are important because they give the buyer a full picture of the property they are purchasing. However, they take time – local authority searches alone can take several weeks or even months to come back. In some cases, buyers can’t wait that long.

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When Is Search Indemnity Insurance Needed?

Search indemnity insurance is often used in the following situations:

• Tight deadlines – If there is pressure to complete the transaction quickly, perhaps due to a buyer’s chain or a financial deadline, waiting for searches could cause delays. In these cases, search indemnity insurance allows the sale to go ahead without waiting.

• Delays with local authorities – Sometimes, searches can take much longer than usual. For instance, if a local authority is dealing with a backlog or has technical issues, the delay could be significant. Some councils have been known to take several months to return a local search. In these situations, search indemnity insurance can be a practical solution.

• Recent searches – In cases where searches were carried out relatively recently, such as for a new-build property, they may be considered "out of date" by the time the sale is ready to complete. Rather than ordering new searches and waiting for them to come back, search indemnity insurance can be used to cover any issues that could have arisen in the meantime.

What Does Search Indemnity Insurance Cover?

Search indemnity insurance varies slightly depending on the provider, but it generally covers the buyer for any financial losses that might arise due to information that would have been revealed in the searches.

For example, if a local authority search would have flagged up a planning application for a nearby housing development, which then reduces the value of the property, the insurance would cover the loss.

The key risks covered by search indemnity insurance usually include:

• Planning applications – Unforeseen developments near the property that could affect its value.
• Environmental risks – Such as flood zones or contaminated land.
• Legal restrictions – Things like legal charges or restrictions that affect what the property can be used for.

The insurance typically covers both the buyer and the lender, providing peace of mind in case any issues arise in the future.

What Are the Risks of Using Search Indemnity Insurance?

While search indemnity insurance can be useful in certain situations, it’s important to understand that it doesn’t cover everything. Here are some potential risks:

• Living conditions – The insurance may cover financial losses, but it doesn’t help if there are issues that affect your enjoyment of the property. For example, if the environmental search would have revealed that the property is at risk of flooding, search indemnity insurance doesn’t stop the flood from happening – it just compensates for the financial impact.

• Unwanted surprises – Some issues that could have been revealed by the searches might make you think twice about buying the property. For instance, you might find out after moving in that a new road is going to be built nearby, which will bring noise and disruption. Or, you might discover that a tree in your garden is protected by a Tree Preservation Order, meaning you can’t cut it down to let in more sunlight.

• Lender requirements – If you are buying the property with a mortgage, it’s important to check whether your lender will accept search indemnity insurance instead of searches. Some lenders insist on full searches, while others may be more flexible, particularly if there are long delays.

What If I’m a Cash Buyer?

Cash buyers have more flexibility than those using a mortgage. Since they don’t need to meet the lender’s requirements, they can decide for themselves whether to proceed with or without searches. In cases where the buyer is in a hurry or confident about the property’s condition, search indemnity insurance can offer peace of mind without the need to wait for searches.

However, cash buyers should still consider the risks carefully. Just because they don’t need a lender’s approval doesn’t mean there aren’t potential pitfalls to completing without full searches.

How Much Does Search Indemnity Insurance Cost?

The cost of search indemnity insurance depends on several factors, including the value of the property and the type of policy. Generally, the higher the property value, the more the insurance will cost. Prices can range from as little as £50 for lower-value properties to several hundred pounds for higher-value properties.

While this might seem like an extra expense, it’s often a small price to pay compared to the potential costs of delaying the transaction or discovering significant issues later on.

Should You Use Search Indemnity Insurance?

Search indemnity insurance can be a helpful tool in certain situations, particularly if you’re facing delays or tight deadlines. However, it’s important to weigh up the risks before deciding to proceed without full searches. Here are a few things to consider:

• How likely is it that the searches would reveal a problem? – If the property is in an area known for flooding or subsidence, for example, it might be worth waiting for the searches to come back.

• How important is it to complete quickly? – If delaying the transaction would cause significant financial hardship or stress, search indemnity insurance could be a practical solution.

• What’s your appetite for risk? – Some people are comfortable taking the risk that nothing major will be revealed, while others would prefer the certainty of having full searches in place.

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Final Thoughts

Search indemnity insurance offers a way to speed up the property buying process by allowing transactions to go ahead without waiting for searches.

 It provides financial protection for the buyer (and lender, if applicable) in case any issues arise that would have been identified by the searches. However, it’s important to remember that it doesn’t cover everything – in particular, it won’t prevent issues that could affect your enjoyment of the property.

Before deciding to rely on search indemnity insurance, make sure you fully understand the risks involved and speak to your solicitor to ensure it’s the right option for your situation.