FTBs stung by insurance costs for gifted deposits
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Conveyancers’ fears over claims of negligence from lenders are fuelling a growing trend in insurance cover for gifted parental deposits.
A rising number of solicitors are charging first-time buyers for deed of gift insurance if they use a cash gift from their parents as the deposit for their property. The insurance can cost as much as £200.
The insurance protects against the possibility of the parents going bankrupt and creditors claiming a share of the property.
Joe Withers, business development director at OpenConvey, says cautious conveyancers are bowing to pressure from lenders to impose the policy because they do not want to risk being sued in the current economic climate.
He says: “If the deposit has been given as a gift lenders will want conveyancers to mitigate risk and ensure they protect the deposit in case of bankruptcy.”
Withers adds that the policy normally costs between £160 and £200 and affects a growing number of borrowers as more parents are gifting deposits.
David Hollingworth, mortgage specialist at London & Country, says: “Lenders have started to request this insurance in more cases and we might start to see more lenders demanding it.”
Several lenders and conveyancers contacted by Mortgage Strategy say that they are following the Council of Mortgage Lenders’ handbook in imposing this insurance on borrowers.
A spokeswoman for Santander says if the bank or a conveyancer knew of an actual risk of bankruptcy it would not accept the case, but in all other instances the CML handbook guidelines would apply.
A spokeswoman for the CML says: “Indemnity insurance may be required for a cash gift and this is in accordance with the CML lenders¹ handbook.
“Insurance may be required because in the unlikely event of the parents’ bankruptcy, insolvency law allows creditors to claw back the deposit. In some circumstances insurance protects against this risk.”
Goldsmith Williams is one conveyancing firm known to be imposing the insurance on some borrowers with cash gift deposits.
A spokeswoman for Goldsmith Williams says: “In line with the CML’s handbook requirements and in cases where our professional view considers it necessary we apply indemnity insurance.”
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Readers' comments (3)
Bill Wells | 4 Jul 2011 10:03 am
TOSH ! Yet another example of rip-off Britain.
Most conveyancing solicitors are struggling to survive so this is just one way of earning a bit more on FTB cases.
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Ketan Yadav - Avenue & Co Private Finance | 4 Jul 2011 1:26 pm
This is a harsh new rule but great there is an insurance indemnity policy to cover this!, most of my FTB cases are parental gifted deposits and lenders are simply getting stricter on criteria.
Bank of Mum & Dad is broke too - I've got quite a few cases where they are finding it hard to cover their own bills and funding school fees and parents going into care.
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Tim | 5 Jul 2011 0:30 am
I haven't come across this requirements yet but if a gifted deposit of 10k or 20k or 30k+ were potentially at risk then I would think that a one-off premium of 100 or 200 would be be money well spent. It would be prudent, I would have thought, for the risk to be clarified by setting out what the legal position of a gifted deposit is in the event of bankruptcy. Is it so clear cut that such a gift would be recoverable.
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