Title indemnity insurance: the ins and outs

We’re excited to put our new title insurance offering to use. As a reminder, our title insurance can be used across several of our residential bridging and buy-to-let (BTL) mortgage products.

This form of indemnity insurance reduces the need to complete the many property searches, investigations and checks that are typically required throughout the lending process. What this means is that MFS’ already speedy service can be delivered even quicker for its clients.

Currently, our title insurance for residential BTL remortgages and bridging refinancing facilities is available for a loan size of up to £3 million, with recently built properties, certain foreign nationals, and offshore corporate structures included. We hope to introduce title insurance more widely across our product range in the future.

But, what exactly is title indemnity insurance, how does it work, and how does it fit in within the property market? This blog will break down the key details investors need to know.

What is title insurance?

Title insurance is a form of indemnity insurance that gives lenders protection, so they do not have to do lengthy, rigorous and expensive (for the borrower) legal checks during the process of buying, or selling a property. It primarily concerns the legal side of things.

Bought and sold properties often come with title defects or risks. Title indemnity insurance can provide protection for many of these issues, which threaten to delay a transaction, or see it fall through entirely. Common examples include lost title deeds[1], or incomplete or outdated information from the Land Registry[2].

How does it work?

Title insurance can be put in place to protect against certain financial losses, as opposed to remedying a defect after the fact. Often, this proves to be the more cost-effective method.

Generally, title insurance is usually taken out as the solicitors involved are instructed to act. There are other forms of indemnity insurance for specific issues, such as mining or mineral rights, but title insurance primarily concerns the property market.

The title insurance policy itself will come into effect after a one-off premium has been paid. This premium will vary between lenders, but is usually linked to the size of the underlying loan.

Title indemnity insurance does not actually remove the underlying issue. It is usually used on remortgage transactions, so the property will already be owned, would have had full searches and legal processes completed at some point in the past, and any potential issues are known about and haven’t yet caused an issue.  Most issues, if identified years later, are usually rectifiable, for example, retrospective planning permission for an extension.

This is of course dependant on the particulars of the policy, and that the conditions have been followed. It should also be noted that lenders and banks may be more willing to work with tricky property investments that have indemnity insurance in place.

Benefits of title insurance

Aside from the cost benefits, having title insurance options in place allows for a speedier conveyancing process. This in turn can allow for faster mortgage completions.

Title insurance, as with any form of insurance, can also provide peace of mind. Lenders can progress comfortably with title insurance in place knowing that if a title issue emerges, it will be addressed swiftly.

Ultimately, title indemnity insurance offers relative protection against the unknown. When this is coupled with the flexibility and adaptability required in the specialist finance world, it adds up to a more well-rounded, complete level of service.

What is and isn’t covered by the insurance?

What’s covered by title insurance will vary between providers. Broadly though, most title insurance policies will cover access issues, adverse possession, chancel repair, mining rights, missing title documents, restrictive covenants, and more, according to Michelmores[3].  Policies will typically cover:

• Trying to put things right in the first instance, e.g., retrospective planning permission, claiming against solicitors for any fraud or errors in process
• the cost of legal proceedings
• the costs of damages and compensation awards
• the costs associated with complying with an injunction
• professional costs
• the reduction in market value of the land with and without the defect(s)
• construction work costs

Most of the things covered by title insurance policies tend to be low risk, or are unlikely to occur. But, where they do arise, they’ll likely prove very costly.

Title indemnity insurance is also unlikely to cover the cost of repairing, or replacing something[4]. For example, if there was a policy in place because there wasn’t an installation certificate for a boiler, it likely wouldn’t cover repairing or replacing said boiler.

With these limitations in mind, if a borrower has concerns, they should discuss them with their conveyancer. Precise or niche searches or checks may be possible without invalidating a title insurance policy.

How could title insurance work in practice?

Having recently introduced title insurance across our product ranges, we recognise its utility in the specialist market. Say a borrower wants to secure a residential property as quickly as possible, and has plans to move onto long-term finance for the exit strategy.

An investment property is usually viewed more of a transactional purchase, when compared to buying a family home. As such, the purchase will likely have less emotional weight behind it, with speed and low costs being particularly important.

Slow legal processes could upend an investment entirely, while long-term lenders may not want to proceed at all with certain issues at play. However, if suitable title insurance is applicable, invested parties – including mortgage providers – are more likely to be happy to proceed[5].

At MFS, we’re always looking for new ways to support our brokers, and their borrowers. We’re excited see how our title indemnity insurance capabilities can help us take our services to the next level.