Market

Our home has subsidence, why didn't our mortgage valuation spot it?


My partner and I have discovered a major issue with our new home, which we bought in November last year. 

When we got builders in to quote on a kitchen remodel, they noticed structural issues including a sloping floor and cracked walls, which had been patched over. 

We then sought advice from a structural engineer who told us we have subsidence. 

They said this started in an extension at the back of the property, and is now affecting the rest of the house. 

This will need to be fixed urgently, and the cost of will be substantial as it involves knocking down and rebuilding the extension.

Cracking up: Subsidence is thought to affect up to 20 per cent of properties in England and Wales, according to property search company, OneSearch Direct

Cracking up: Subsidence is thought to affect up to 20 per cent of properties in England and Wales, according to property search company, OneSearch Direct

The extension was built in 2008 and had building regulations at the time, which were confirmed by our solicitor at the time of purchase.

This afternoon we called Virgin Money, our mortgage provider, as we felt let down by the fact their surveyor did not identify this when granting the mortgage. 

It only conducted a desk-based survey and was therefore never going to identify such an issue. Virgin Money said its only responsibility in surveying for a mortgage is to value the property and not assess it from a structural perspective.

But as subsidence could substantially devalue the house, surely mortgage lenders should carry out proper checks? 

Is there any other avenue we ought to explore here? Should we be asking the local council how this has happened if it has building regs? Or should the seller have declared it? Via email.

Ed Magnus of This is Money replies: This is a brutal situation and desperately unlucky. Of all the problems for a homeowner to confront, subsidence is one of the worst. 

The idea of dismantling and rebuilding an entire extension is enough to make anyone regret a property purchase. 

Our reader appears to have relied on the mortgage valuation rather than arranging their own independent survey.

What is subsidence?

Subsidence occurs when the ground beneath a building sinks, causing the foundations to move.

It typically happens as a result of hot dry weather, or the presence of trees or shrubs causing the soil to lose moisture.

Cracks in your home’s walls, either in the internal plasterwork or external brickwork can be a sign of subsidence, though they are not always. 

The cracks tend to be diagonal, wider at the top than at the bottom, and thicker than 3mm (or a 10p coin).

Unfortunately, a basic mortgage valuation is carried out for the lender’s purposes only, and not on the behalf of the borrower. It should therefore never be relied upon to detect issues with the property.

This is because it is only designed to check the property fits within the lender’s criteria, and that the amount being paid represents market value.

Every lender will require some type of valuation but this will vary from a full, in- person valuation to an online assessment, known as an automated valuation model (AVM).

Unfortunately, our reader received an automated valuation. This would have been calculated by comparing online data for sold prices in the immediate area.

If the property had received an in-person check-up, there is a chance that the subsidence would have been spotted.

Every home buyer would always be wise to arrange their own building survey. Unlike with a mortgage valuation, a surveyor’s job is to inspect the property’s condition so that the buyer is made aware of any potential issues.

It isn’t a legal requirement, but without one, you could be left unaware of all manner of costly problems that may be lurking within, such as subsidence.

Better safe than sorry: After having an offer accepted on a property, buyers have the option to organise an independent survey before contracts are exchanged

Better safe than sorry: After having an offer accepted on a property, buyers have the option to organise an independent survey before contracts are exchanged

The reader did not say whether they organised their own survey. If they did, they may have a claim against the surveying company.

We contacted Virgin Money about this situation. A spokesperson from the lender said: ‘Every mortgage application requires the property to be valued. 

‘A number of factors including loan amount, loan-to-value and property type impact the type of valuation we use. This could be either a physical valuation or desk-based. 

‘A structural survey is not the responsibility of the lender, but we do advise customers to arrange for one to be carried out independently, for their own peace of mind or if they have any specific concerns.’

How to fix subsidence

Subsidence should be something that is covered under your home insurance policy. This means, bar the excess, you should be able to avoid the cost of remedying it.

In some cases underpinning will be required. This is when extra support is added beneath a building to prevent it from sinking into the ground.

Careful check: A good surveyor should notice issues outside the property, as well as within its walls

Careful check: A good surveyor should notice issues outside the property, as well as within its walls

It’s an expensive undertaking and the cost will vary depending on the method used, the location, the size of the area, the type of property and whether the building is on a slope.

The average cost of underpinning, according to Checkatrade, is between £1,500 and £2,600 per m2.

There are also a number of extra costs that will need to be factored in on top of the work itself. 

If you live in a detached or semi-detached property, party wall agreements will sometimes need to be drawn up between you and your neighbours by a surveyor.

Before you begin work, you’ll need to notify and pay your local building control office. The cost will vary from council to council.

You may also need a structural surveyor, a building contractor, or a tree surgeon.

In the case of our reader, as they will be required to knock down the entire extension and start again it will cost quite a lot more.

The average cost for a 20m2 extension is £37,500, according to Cheackatrade – and that does not factor in the demolition and removal of the original extension.

To help advise our reader further, we spoke to Grant Barnes, a chartered surveyor at Barnes and Barnes surveyors, David Hollingworth, associate director of mortgage broker L&C Mortgages and Paula Higgins, founder of the HomeOwners Alliance.

We also heard from a spokesperson from the insurer Aviva, and from Chun Wong, a partner at the legal firm Hodge Jones & Allen.

Can mortgage lenders be expected to spot issues? 

Grant Barnes replies: I am sorry to hear that your reader has come into difficulty caused by subsidence affecting their extension and rest of the house.

Essentially, the issue here is one which has been raised on many occasions by purchasers who have sought to rely on a valuation rather than a survey.  

It should be remembered that its inherent value is not just the ‘bricks and mortar’ but also the land itself that can typically range from 40 per cent to 45 per cent of the overall value.

For this reason, most banks will explicitly state that the customer should not seek to rely on the banks’ valuation to confirm the property is in good condition or warrant that it is structurally stable.

David Hollingworth adds: Even a basic valuation that is conducted in person isn’t designed to protect the buyer. As the name suggests, it is there to give a valuation for the lender’s purposes.

Borrowers are advised to go for a more in- depth homebuyer’s report, or a full structural report, to get a deeper insight into any issues with the property.

These more in-depth reports come with a higher cost than a basic valuation, which could even be free as part of the overall mortgage deal.

However, it can be money well spent, as it should raise any potential issues before the purchase is final and buyers can go in with their eyes open.

Why was an automated valuation used?  

Grant Barnes replies: The customer will likely have been warned as to the potential risks of not arranging a survey, particularly if they were aware that the mortgage was based upon a desktop valuation.

In the past most lenders carried out a physical inspection of the property.

Valuation automation: A desktop valuation is an automated computer valuation achieved using online property data, recent comparable sales and property listings

Valuation automation: A desktop valuation is an automated computer valuation achieved using online property data, recent comparable sales and property listings

However, the use of desktop valuations has become more prevalent in recent years as they are cheaper, can be completed faster and bypass many of the challenges that can slow down a full appraisal.

Desktop valuations are mostly preferred for lower-risk of loans.

What may have caused the subsidence in this case?  

Grant Barnes replies: The extension may well have received building regulation approval in 2008.

However, there are a number of factors that can subsequently affect the property and cause ground instability.

For example, subsidence is an issue known to increase when there are long spells of dry and hot weather.

Mind the gap: Cracks in your home's walls, either in the internal plasterwork or external brickwork, can be a sign of subsidence

Mind the gap: Cracks in your home’s walls, either in the internal plasterwork or external brickwork, can be a sign of subsidence

The predominant cause of subsidence in the UK is soil shrinkage; accounting for approximately 75 per cent of all subsidence claims.

This can be caused by the influence of tree roots in clay soil. Leaking drains and pipes are also a causal factor of subsidence, accounting for about 15-20 per cent of subsidence incidents.

Will this definitely be covered by their insurer?  

A spokesperson for Aviva replies: Most household insurance policies will cover loss or damage caused by subsidence as standard, but some insurers may decline to insure properties with a history of subsidence.

All insurers will ask about any history of subsidence when a customer applies to take out cover. 

Terms vary between insurers, and the outcome of a claim will very much depend on individual circumstances and insurers.

Any claim would be investigated before a decision would be made. In this case, we would suggest that the customer speaks to their insurer, who could then assess the situation and any potential claim.

What should our reader do next?   

Paula Higgins replies: I’m afraid to say that they won’t get anywhere with their lender.

If they did get their own building survey, they may have a case against their surveyor.  

I think they should also ask an insurer for their opinion as I expect that is the route they need to take.

But be aware it will become difficult to change insurers as others won’t take on properties with known subsidence. Premiums will likely go up too.

I would also be wary about going to the council – unless it is to confirm that there has been a building regs sign off. The council could demand the new owners put things right if it is an unsafe structure.

The subsidence may have happened after the extension was completed, and the extension could very well have met the building regs at the time.

Finally, it does sound like they may have a case against the sellers if they lied on the TA6 form.

Nightmare: The average cost of building a 20m2 extension is £37,000 according to Checkatrade. Our reader will have to knock down the existing extension before starting

Nightmare: The average cost of building a 20m2 extension is £37,000 according to Checkatrade. Our reader will have to knock down the existing extension before starting

The TA6 Property Information Form is completed by you when you’re selling your home. It’s designed to give the buyer important information on the property.

This includes boundaries, any disputes and complaints with neighbors, planning notices and proposals, guarantees and warranties (for underpinning for example), as well as environmental maters such as whether flooding as impacted the property or if Japanese Knotweed has been detected or treated in the past.

Unfortunately, I don’t believe there is a specific question asking to disclose subsidence.

Grant Barnes adds: It may be worth speaking to a legal adviser to investigate whether there may be possible to seek damages from the seller. 

However, this may be difficult to prove – particularly as the buyer alone is responsible for assessing the quality of a purchase before buying. 

Is there a legal claim to be had?

Chun Wong replies: It is not clear what has caused the subsidence since the extension in 2008. This will need to be investigated first.

In terms of the valuation, the question is whether it was reasonable for the mortgage lender to have conducted only a desktop valuation at the time taking into account all the relevant information. 

We suggest a full file of papers is obtained from the conveyancing solicitors and local authority. 

They should also check to see if they have the benefit of legal expense insurance, which may provide cover for legal costs in these circumstances.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.