Since the buildings insurance on a house is often the last piece of the bureaucratic jigsaw to slot into place before exchange of contracts - often on the very day of exchange - it can prove to be an unsuspected land mine.
The problem is now so common that estate agents have begun to blame insurance companies for collapsing sales, accusing them of holding back the recovery of the property market. They say that whole streets, even postal districts, where houses are close to water or where subsidence claims have been made, have been zoned as 'no go' areas by insurers who don't want to go on meeting the cost of claims.
David Mitchell, a partner with Dreweatt Neate estate agents in Newbury, Berkshire, is leading the attack. 'There are certain areas in London where insurance companies judge the risk by the post code,' he said. 'A friend of mine whose house had been underpinned could not get cover because of this. In the end his buyer had to shop around for insurance before the sale could continue.'
One buyer I spoke to, who found himself in the same position when he was buying a large 16th-century farmhouse in Berkshire, did not want to be identified in case it made it difficult for him to sell the house when the time came. 'The magic word 'subsidence' was mentioned in the structural survey, but I wasn't a bit worried about it because I knew and liked the house,' he said. 'It was getting close to exchange and the insurance company said they wouldn't insure it, so I thought I wouldn't bother with insurance.'
His lawyer became worried that he might be buying an unsaleable house. But he continued with the purchase, managing to get cover for everything except subsidence. At the same time he had the corner of the house that was causing the trouble underpinned, and the pounds 10,000 cost deducted from the sale price.
'The whole thing is absurd,' he said. 'The house probably moves around a bit all the time and if one corner is pinned it may cause problems in the other corners in future.' He still has no subsidence cover but intends to re-apply to the insurance company in a year's time.
In many cases the refusal of insurance would be enough to frighten buyers away. Richard Brooks, an agricultural specialist with Lane Fox estate agents in London, reckons that as many as one in six sales fall through for this reason. 'Insurers have been gradually tightening up over the last year on the risks they are prepared to take,' he said.
He speaks from personal as well as professional experience. For him the problem blew up on the day of completion, three weeks after contracts had been exchanged. 'On the morning of completion the bank rang me to say they could not transfer the loan because the insurance company had found a mention of past subsidence on one of the forms,' he said. 'Why couldn't they have raised this four weeks ago, three weeks ago, two weeks ago? Why leave until the last possible moment?'
The subsidence in question had occurred eight years earlier in the bay window at the front of the house and had been caused by tree roots. The tree had been doctored, the bay underpinned, and there had been no problem since. 'We were by this time in breach of contract because we hadn't been able to complete the purchase,' he said. Finally, the insurance company accepted the written assurance made by a surveyor that the property was insurable, and the sale went through.
The insurance industry readily admits that it has moved the goalposts for house buyers and sellers in the last year, but it rejects the suggestion, made by the Consumers Association in a Which? report this month, that insurers are 'cherry-picking' for the best risks. The Which? report focused on householders who had made two or more claims for theft in the past year then found they were being refused when the time for the renewal of their policies came round. They are considered as poor a risk as houses that may be in an area where subsidence has occurred.
The net is closing because of the soaring number of insurance claims in the past few years, both for theft and for subsidence. In 1991 payments to householders in subsidence claims alone peaked at pounds 540m. The level has dropped a little since, but it is still staggeringly large compared to the pounds 91m that was paid out for the same problem in 1988. The sheer number of claims has enabled insurance companies to pinpoint the areas, even the streets, where the risks may be greater.
The Association of British Insurers (ABI) admits that in some cases the red line is simply drawn around a post code area. The fact that someone down the road has made a claim could upset the sale of your property. There is a fear that whole areas on the slippery clay soils of London, the Thames Valley and the north- east coast could become blighted if companies are not prepared to insure them.
The advice is to arrange your insurance through a broker, who will be able to shop around for a kindly insurance company on your behalf, and to have a full structural survey carried out so that any problems come to light early. But surveyors, too, are so cautious these days in case they are themselves sued for getting it wrong, that often a structural engineer is brought in for a second opinion.
A way of circumnavigating a point-blank refusal from an insurance company is for the purchaser to take out cover with the company that already insures the house for the vendor. But beware the proposal forms. They ask about whether neighbouring houses, or those opposite, have signs of subsidence, and whether insurance has ever been refused on your house.
Despite the much talked of recovery supposed to be taking place in the housing market, prospects look bleak indeed for the house with cracks, the house that once had cracks, the house next door to the house with cracks . . . or the house that happens to be in an area where there are houses that once had cracks. -
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