Buying a property in the UK is no easy task due to the many steps and different parties involved. Whether you’re completely new to the process or you’re a property buying veteran, there are a number of factors that can cause property sales to fall through. In the UK, a massive 31% of property sales fall through after a sale has been agreed which is not only extremely stressful, but also very costly and time consuming.
It’s important to be aware of what’s at stake when buying a property, to get a good grasp of the financial impact should a sale not go through.
Here’s a list of potential upfront fees involved when buying a property:
- Conveyancing / legal fees (£1000 – £1500)
- Survey/valuation fees (£300 – £1500 depending on the level required)
- Mortgage lender product fees (£0 – £2000)
- Mortgage broker fees (£0 – £200)
- Accommodation and storage (£0 – £1000)
As you can see, thousands of pounds are at stake when buying a property. On average, a buyer could potentially lose £2,899 if a sale falls through. You might not be using all of these services but there are some that you can’t avoid. The conveyancing costs for example. You will always need legal representation when buying a property.
If a sale fails, you will still be liable to pay your conveyancer for the work they have completed so far. This fee can differ depending on how much work has been completed.
A survey fee will be paid upfront to your mortgage lender and you will only know the results of this once the report comes back. There could be some major flaws with the property that were unknown prior to agreeing to a sale. This could trigger price negotiations which might fail, leading to you pulling out of the sale.
The mortgage product fee can be paid upfront before a mortgage offer is provided or can be added to the repayments of a mortgage. If paid upfront, you could lose this if a sale falls through. The same would apply to a mortgage broker fee, although you cannot opt to repay this through your mortgage repayments.
It’s quite common for people to arrange accommodation and storage when buying a home. This is normally arranged in advance to secure space. If a sale falls through then this cost is generally non-refundable. You might be able to reduce the term but still, you’re going to lose out here.
The potential losses here are considerable but that’s where house buying insurance can help. With this insurance in place, you can recoup some or in some cases all these costs.
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What is home buyer protection insurance?
Home buyer protection insurance is a type of insurance that protects buyers from any financial loss in the event that the sale of the property does not or cannot complete.
Cover will be available on different levels and give greater paybacks the higher you decide to go. It can cost from as little as £60 and go up to around the £200 mark.
Most insurers will offer a maximum payout for a specific area. For example, you may be able to claim up to £1000 on your conveyancing fees or up to £300 on your survey fees. You’ll need to read your chosen insurer’s individual policy to find what’s right for you.
Deciding whether this type of insurance is necessary will depend on a number of factors and the level of risk involved with your purchase. The higher the risk, the more prevalent it would be to take out the insurance.
Evaluating the risk
We already know that on average 31% of sales in the UK fail, but let’s take a look at the potential reasons for a property sale to fall through so that we can assess our own personal level of risk.
What can cause a house sale to fall through?
The factors that cause the fall through of a property sale can differ, but one of the most common is the buyers having a change of heart or circumstance. This is followed closely by mortgage application difficulties, slow legal teams and sellers becoming greedy.
A change of heart or circumstance
So, why are so many people having a change of heart? The trouble with the current market is that it’s moving very fast. Demand is far outweighing supply so buyers are under extreme pressure to move fast to secure their dream home. This often causes many buyers to rush into making a decision, through fear of missing out. The trouble with a quick decision is, it’s often not the right one and after a bit of thought, buyers change their minds.
It’s often the case that buyers continue their house search, even after putting forward an offer. They might then come across a better property and change their minds.
With the current situation in the market leaning towards sellers, this can put them in an advantage over buyers. With demand outweighing supply, buyers are scrambling over each other to find their perfect property. A greedy seller could change their mind on price after a sale has been agreed, especially where they feel like they could get a better price if they went back on the market. This is a nasty process but completely legal.
It’s also quite common for lenders to downvalue a property after a mortgage valuation. If a buyer has offered too much on the property and already stretched their budget they then might not be able to afford it. Only by increasing their deposit could the sale continue. And if the seller is greedy they may decide not to lower the price.
Property sale failure by region (2022)
It’s not the same everywhere across the UK, so you might want to weigh up the risk depending on the area you are looking to buy. According to Home Selling Expert these are the average percent of sale fall-throughs per region.
|Region||Sales fall through %|
As we can see it is far riskier to buy a property in Wales with a massive 45% of sales falling through there. On the other end of the scale, we have the North East at 24%.
Understand risk within a chain
Many home buyers will be a part of a chain, which means a buyer will be buying a property from someone who is selling their property to fund the purchase of another property. This can continue in both directions and the bigger the chain, the more risk is involved.
For example, If you are a first-time buyer, buying a vacant property (or someone just selling) then there is no chain. But there is still that percentage of risk of the sale falling through. When you add a property and create a chain, the risk increases because you aren’t just reliant on the purchase of a home, someone else also has to make sure their purchase and sale is successful. Add a third property in the chain and the risk increases again. So the more in a chain equals a much higher risk.
So with all of these risks sized up, we should now have a better understanding of the question at hand. Is buyer protection insurance worth it?
Is buyers protection insurance worth it?
With all of these potential costs and risks in mind, it’s certainly worth considering buyer protection insurance. The cost of buyer protection insurance can vary depending on the level of cover required but generally will be between £60 – £200.
The lower levels of coverage tend to give you less of a payout but will easily cover the cost of the insurance. The higher levels of insurance again, might not reimburse you for everything but you will get a large percentage of the money back.
In many cases, buyers’ insurance is a smart move, even if you consider yourself to be in a low-risk situation. If however, you are in a high-risk location, need a mortgage and are part of a large chain, then it would be very sensible to put this kind of insurance to the top of the list. If a sale goes bottoms up, and you’ve got some high level insurance in place, then you’ll only be out of pocket a couple of hunded pounds, at the most. When comparing to the potential of a few thousand this probably sounds quite appealing.
Whilst an insurance policy will cover you against unforeseen issues there are a number of things you can do to make the whole buying and selling process a little smoother.
How to minimise property sale fall-throughs
A seller should know their house pretty well and can look through old documentation to find relevant information about their property. By providing as much information as possible upfront, the risks can be minimised further down the line. For example, they might know any restrictive covenants on the property, any structural issues or potential flood risks which would mean less surprise further along the sale process. These things that might make for a lower house valuation should be made known at the start to avoid wasted time and money throughout the sale of the property. It will put confidence in your buyers and avoid them wanting to pull out of the sale later on.
As a seller, asking for the right price for your home is important. You might be able to ask a little more but you then run the risk of the mortgage provider down valuing your house during the valuation. This could then mean that your buyer can no longer get the mortgage they require to buy your property and will either have to come up with the extra money themselves or pull out of the sale.
Buyer & sellers
Find a good solicitor/conveyancer. Word of mouth tends to be the best route for this. If your friends or family have had a good or bad experience in this area then take this on board. Don’t always go for the cheapest as this could potentially be for a reason. Fresh out of training solicitors will be cheaper but won’t have the level of experience to bring to the table. Find a professional firm with tones of experience in the residential property market and you should be fine.
Act quickly with all paperwork and questions. The faster you respond the faster the process can keep moving. Don’t allow things to go quiet. If you feel like nothing is happening, then that might be the case. Stay in touch with your solicitor and check in to see if they have received paperwork etc. to keep the ball rolling.
Keep the communication flowing between all the different parties. Make sure everyone is in the loop with progress. Don’t expect someone else to do this (even if it is their job). Get on the phone with solicitors, estate agents, surveyors and mortgage providers whenever required. If someone has said they are going to do something, follow them up a day later to check that it’s been done. It might sound a little over the top but from experience this is the only way to gain traction.
Hopefully this article has given you plenty to think about and prepare for. From previous experience buying and selling multiple properties I have been lucky enough to avoid a sale failure, but it’s been extremely close on a couple of occasions. Insurance is a safe bet for most but it’s not going to suit everyone. For some further reading on the house selling and buying process and where it can be improved check out this article.