First-home buyers have a lot to learn when entering the housing market, and taking out title insurance is yet another decision they’ll need to make along the way.
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What is title insurance?
Title insurance is specialised insurance designed to protect home buyers and homeowners from any risks that affect the property title. These risks may arise during the conveyancing process and throughout the term of your ownership that affects. It can cover anything from the financial loss incurred by errors made by previous owners to identity theft.
How title insurance works
In Australia, your property comes with a title, or a document confirming legal ownership. During the conveyancing process, your solicitor will conduct a title search to ensure that the property has no competing ownership claims, no outstanding debt — such as unpaid rates — and that the property’s boundaries are correct.
Once you have settled on your property, you may become exposed to risks to your title, however, and the title search will not necessarily reveal that something is amiss. Unfortunately for a homeowner, any number of issues could potentially rear their ugly heads sometime down the track, even years later.
If, for example, the previous owner added a carport or a septic tank that didn’t meet council building standards, you could suddenly find yourself with a building notice for thousands of dollars.
Unlike home and contents insurance, which protects your home and everything in it from damage or theft, title insurance protects the buyer from claims against the property itself.
Importantly, there are no restrictions on when you can take out title insurance in Australia before or after settlement. The policy also lasts for as long as you own the property.
What does title insurance cover?
Title insurance covers a range of things, including:
- Situations where an individual or group lodges a claim on the property title.
- Situations where someone claims access rights to your property.
- Boundary errors if someone encroaches on your land.
- Government or council errors that may have resulted in past undercharging for council rates or land taxes.
- Outstanding council rates and water rates.
- Registration gaps.
- Non-compliant building work, such as renovations conducted by previous owners with no council approval.
- Mistakes in the conveyancing process that lead to conjecture about who the real owner is.
- A lack of legal water supply or drainage to the property.
- Any financial losses arising from fraud, forgery and identity theft.
The final point is important as it protects the owner against property fraud, which has become an increasingly big problem nationally, thanks to skyrocketing property prices and hackers targeting the settlement process. In worst-case scenarios, homeowners have had to prove their rightful ownership of a property or even be deprived of it.
Title insurance doesn’t cover things already covered by a home and contents policy, such as fire damage.
How much does title insurance cost?
Title insurance, which has only been available in Australia for about 12 years, is not compulsory like stamp duty or other government charges, and it consists of a one-off payment that varies depending on your property’s price and location. The cost will also vary, but only very slightly, depending on which state or territory your property is located in, due to the stamp duty attached to the cost.
Currently, there are only two title insurance providers operating in Australia — First Title and Stewart Title Limited — so it’s easy to compare their prices for houses, strata titled property, rural property and land, which are almost identical.
By way of example using both providers’ calculators, a First Title policy for a residential property in NSW valued at $500,000 attracts a fee of $450.70 including stamp duty and GST, While Stewart Title charges $450.07 for the same policy.
A policy for a $750,000 property from Stewart Title would set you back $600.08, which is only $150 more despite the jump in property value, which reveals that title insurance is not one of the larger expenses you will encounter in your property journey.
Is title insurance worth it?
Every first home buyer should understand title insurance and ask themselves whether they need it based on their property’s cost and location.
Title insurance may seem like a relatively minor payment in the grand scheme of home ownership, especially since it does consist of just one up-front payment. But, once you factor in stamp duty, legal fees, home and contents insurance, a building inspection and possibly lenders mortgage insurance, it may seem like just one expense too many.
However, title insurance only involves a one-off payment of a few hundred dollars maximum, so it’s much cheaper than things such as lenders mortgage insurance or home and contents insurance, and it protects you against a wide range of potential problems. Additionally, while the likelihood is that you won’t have to make a claim on your policy, like all insurance, it provides extra peace of mind for a relatively small amount of money.
Title insurance is currently the only way to achieve the most comprehensive protection possible against risks that may affect the legal ownership of your property and your right to occupy and use the land, and it’s good for the entire period of your home ownership.
Before rushing to sign up, you should, however, get your solicitor or a mortgage expert to explain what’s contained in the policy documents. This way, you know exactly what it does and doesn’t cover.