Indemnity Insurance for Home Buyers

At Towerstone, we provide specialist property accountancy services for homeowners, landlords, and property investors. This article explains the key points you need to understand around this topic.

Indemnity insurance is one of those things that often appears suddenly during the conveyancing process. Many buyers first hear about it when their solicitor says something like “we can deal with this by putting an indemnity policy in place”. That can sound worrying, as if there is something seriously wrong with the house.

In reality, indemnity insurance is extremely common in UK property transactions and is often used to deal with low risk legal or technical issues where perfect paperwork is missing. It does not mean the property is unsafe, unmortgageable, or defective. In most cases, it is simply a pragmatic way to allow a purchase to proceed without delay.

In this article, I will explain clearly and practically what indemnity insurance is when buying a house, why it is used, what it covers, what it does not cover, and when you should or should not be comfortable relying on it. This reflects how indemnity insurance works in real conveyancing transactions rather than how it is often misunderstood.

The simple definition of indemnity insurance

Indemnity insurance in a property context is a specialist insurance policy that protects you, and usually your mortgage lender, against financial loss arising from a specific legal risk attached to the property.

The key word here is legal.

Indemnity insurance does not cover physical defects like damp, subsidence, or poor workmanship. It covers the risk that someone could take legal action or enforcement action in the future because of a historic legal or regulatory issue.

The policy is usually taken out once, at completion, and lasts indefinitely.

Why indemnity insurance exists at all

Property law in the UK goes back hundreds of years. Many houses have been altered, extended, or used in ways that were perfectly normal at the time but would require formal approval today.

Paperwork was not always kept, councils did not always record things consistently, and rules have changed over time. As a result, many perfectly good homes have small technical issues on paper.

Rather than forcing every buyer to resolve historic issues that may never cause a problem, indemnity insurance exists to manage the risk sensibly.

It is a way of saying “there is a small legal risk here, but we will insure against it rather than reopening old matters”.

Common situations where indemnity insurance is used

Indemnity insurance is most often used for a small number of recurring issues.

One of the most common is missing building regulations approval. For example, a loft conversion or extension may have been built many years ago, but the completion certificate cannot be found.

Another frequent issue is lack of planning permission for older works. In many cases, the work is now immune from enforcement due to its age, but lenders still want protection.

Restrictive covenant breaches are also common. This might include building an extension that technically breaches an old covenant but has caused no dispute.

Rights of way and access issues often lead to indemnity insurance, particularly where access has been used for years without formal documentation.

Boundary discrepancies, where fences or walls do not align perfectly with title plans, are another regular trigger.

What indemnity insurance actually covers

The cover depends on the type of policy, but in general indemnity insurance may cover:

• Legal costs if enforcement action is taken

• Compensation or damages if you suffer financial loss

• Reduction in property value caused by enforcement

• Costs associated with defending a claim

The policy usually covers you as the buyer, future owners of the property, and your mortgage lender.

This is why lenders are often satisfied with indemnity insurance as a solution.

What indemnity insurance does not cover

It is just as important to understand what indemnity insurance does not do.

It does not make unauthorised work compliant.
It does not guarantee the quality or safety of work.
It does not cover physical repairs.
It does not protect against issues you already know about and disclose incorrectly.

If an extension was badly built, indemnity insurance does not fix that. It only covers the legal risk of enforcement, not the practical consequences of poor construction.

A very important rule buyers must understand

Once indemnity insurance is proposed, you must not contact the relevant authority about the issue.

For example, if the issue is missing building regulations approval, you must not contact the council to ask for retrospective approval.

Doing so usually makes indemnity insurance unavailable because the risk of enforcement has been brought to the authority’s attention.

This is why buyers should always follow their solicitor’s advice and not try to “tidy things up” themselves.

Who usually pays for indemnity insurance

There is no fixed rule, but in many cases the seller pays for the indemnity policy.

This is because the issue usually relates to something that happened during the seller’s ownership. Paying for the policy is often seen as part of keeping the sale moving.

However, the cost is usually relatively modest, often a few hundred pounds, and sometimes buyers agree to pay, particularly in competitive markets.

The key point is that it is a one off cost, not an ongoing premium.

How long indemnity insurance lasts

Most indemnity insurance policies last indefinitely.

They usually protect:

• You as the buyer

• Your mortgage lender

• Future owners of the property

This means that when you come to sell the house later, the same policy can often be relied upon by the next buyer.

In practice, many properties change hands multiple times with the same indemnity insurance in place.

Does indemnity insurance mean something is wrong with the house

Not necessarily.

In most cases, it simply means that a document is missing or a technical requirement was not recorded properly at some point in the past.

Many homes with indemnity insurance are structurally sound, safe, and perfectly good places to live.

Indemnity insurance is about managing legal risk, not highlighting danger.

When indemnity insurance is usually acceptable

Indemnity insurance is generally acceptable where:

• The issue is historic

• There has been no enforcement action

• The risk of enforcement is low

• The issue cannot easily be resolved

• The lender is satisfied

This describes the majority of indemnity insurance cases in residential conveyancing.

When indemnity insurance may not be appropriate

There are situations where indemnity insurance is not suitable.

These include cases where:

• There is ongoing enforcement action

• The issue is very recent

• The problem is serious and active

• The buyer plans major further works

• The lender refuses to accept insurance

In these cases, resolving the issue properly may be necessary, even if it delays the transaction.

Indemnity insurance and planning permission

A common misunderstanding is that indemnity insurance replaces planning permission.

It does not.

If you plan to extend or alter the property further, indemnity insurance may not protect you. Future applications could trigger scrutiny of past works.

This is why buyers planning major changes should be particularly careful and discuss implications with their solicitor before relying on insurance.

Indemnity insurance and restrictive covenants

Covenant indemnity insurance is widely used.

Old restrictive covenants often prohibit building, altering, or changing use. Many have been breached for years without issue.

Where consent was not obtained and the beneficiary is unknown or inactive, indemnity insurance is often the preferred solution.

This allows the buyer to proceed without trying to trace beneficiaries or negotiate releases.

How lenders view indemnity insurance

Mortgage lenders are a major reason indemnity insurance is used so often.

Lenders focus on protecting the value of their security. If indemnity insurance removes the financial risk of enforcement, lenders are usually satisfied.

In many cases, it is the lender, not the buyer, who insists on insurance even where the buyer is relaxed.

Should you be worried if indemnity insurance is suggested

In most cases, no.

Indemnity insurance is part of normal conveyancing practice. It is not a sign of a bad property or a failed transaction.

However, you should still understand what the issue is and whether it affects your future plans.

Ask your solicitor to explain:

• What the issue is

• Why insurance is being suggested

• What the policy covers

• What it does not cover

An informed buyer is a confident buyer.

Can indemnity insurance affect resale

In most cases, indemnity insurance does not negatively affect resale.

Future buyers and lenders are often happy to rely on the existing policy.

In some cases, additional policies may be taken out to cover new issues, but this is common and rarely problematic.

Why indemnity insurance is often better than fixing the issue

Trying to fix a historic legal issue can be slow, expensive, and sometimes impossible.

Councils may not issue retrospective approvals. Beneficiaries of covenants may not be traceable or may demand high fees.

Indemnity insurance avoids reopening old matters and keeps the transaction proportionate.

Common myths about indemnity insurance

There are several misconceptions worth clearing up.

Indemnity insurance does not hide dangerous defects.
It does not make the house unmortgageable.
It is not unusual or suspicious.
It is not a last resort.

It is a standard tool used daily by conveyancers.

A practical example

Imagine buying a house with a rear extension built 15 years ago. There is no building regulations completion certificate, but the extension has been used without issue.

The council is now out of time to enforce, but the lender wants protection.

Indemnity insurance is taken out. If the council ever tries to enforce or if the lack of approval causes loss, the policy covers it.

The house is not altered, the issue is managed, and the purchase proceeds smoothly.

What buyers should do when indemnity insurance is proposed

The sensible approach is to stay calm and informed.

Read the policy summary.
Understand the underlying issue.
Follow your solicitor’s advice.
Do not contact authorities yourself.

In most cases, this keeps the transaction on track.

Final thoughts from real world experience

So, what is indemnity insurance when buying a house. It is a practical way of managing small legal risks that arise from the long and imperfect history of UK property.

In my experience, indemnity insurance causes far more anxiety than it deserves. Used correctly, it protects buyers and lenders, avoids unnecessary delays, and allows perfectly good homes to change hands without drama.

Indemnity insurance is not a warning sign. It is a safety net, and in UK conveyancing, it is one of the most common and useful tools available.

You may also find what is shared ownership houses and what is the town house useful. For broader property guidance, visit our property hub.