Get wise before the event

Blight insurance offers some protection against problems that won't show up on a survey, says Stephen Pritchard
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The Independent Online

After a housing market crash, a home owner's greatest fear is likely to be property blight. Horror stories abound of buyers who have moved into their dream home to find that months or even weeks later, work starts on a motorway widening scheme or a new sewerage works, or that a mobile phone mast puts down roots in a neighbour's back yard.

After a housing market crash, a home owner's greatest fear is likely to be property blight. Horror stories abound of buyers who have moved into their dream home to find that months or even weeks later, work starts on a motorway widening scheme or a new sewerage works, or that a mobile phone mast puts down roots in a neighbour's back yard.

Research by the house price tracking service Hometrack suggests that a railway line near a home cuts its value by six per cent, and an electricity pylon by nine per cent. A derelict or run-down house next door could cut values by up to 20 per cent. At current property prices, that equates to almost £34,000.

Some forms of blight, such as subsidence, should show up in a survey. Others, such as noisy neighbours or a property falling into disrepair, are impossible to foresee. But for some forms of blight, home owners can now arrange insurance.

Lucas Fettes, an insurance broker, has developed a policy covering a range of developments that could blight a home. These include new roads, railway lines, airports, housing estates, prisons, sewerage works, pylons and masts. The policy will even compensate for noisy neighbours. The insurance policy is underwritten at Lloyds of London, and will pay up to £100,000 for losses following blight, including the reasonable costs of moving house. According to Richard Heighton, a director at Lucas Fettes, these include professional fees and stamp duty.

Proving that a property has fallen in value due to blight can be extremely difficult, however. For this reason, homeowners can only claim for actual losses. This means moving home. "You have to actually move out of the property," explains Heighton. "We then know exactly what it is worth."

The insurer then asks a chartered surveyor for an assessment of the property's value before the blight. The difference between that assessment and the sale price, plus moving expenses, is the basis for the claim. Homeowners cannot claim for a loss in value and remain in the property.

There are other restrictions, too. As most of the blights covered are developments that need planning permission, the insurers will only take on properties within 13 weeks of a local authority search. It will not cover any proposed developments found by the search. This restricts cover to those who are moving home or remortgaging.

Premiums are also relatively expensive, at £12 a month; there is only one sum insured, and one premium, regardless of where the property is in the country. Lucas Fettes is looking at offering the policy through large mortgage lenders, and this could cut premiums to around £4 a month. But for now, home owners could find that the blight insurance is as expensive as their existing buildings and contents policies.

The insurance company also takes steps to ensure that buyers don't take on properties knowing that development is likely, through pre-contract enquiries. Proposed developments in the public domain would not trigger a payout.

On this basis, residents in areas covered by London's Heathrow, Gatwick and Stansted airports would not be able to claim compensation from new or extended runways, as the Government has published consultation papers discussing the options at each site. If a new airport were to be built in a new location not in the report, and where no planning application is before a local authority, homeowners would be covered.

Developments that are possible, but not planned, would trigger compensation under the scheme as long as the homeowner sells at a loss. "We might find that we have a large number of applications from residents on windy Scottish hillsides, as it is very likely that we will see more windfarms being built there," says Heighton. But as long as no one has formally applied to build a windfarm, homeowners could still take out the blight insurance. They would, though, need to keep up premiums until the farm was built.

The number of people affected by blight is likely to rise. Heighton gives the example of a couple buying near greenbelt land for their retire- ment. Housing pressures could mean the land is reclassified for development, and they find themselves opposite a housing estate. "They would no longer have what they have bought, and might not be able to afford to move," says Heighton.

Insurance, though, will not compensate fully for the stress of a forced move. Although it is impossible to foresee every possible planning application, research can spot potential problems.

A good surveyor will ask about derelict land near a property that might be redeveloped, and point out transport or other facilities that could be expanded or change their use. And looking around near to the property might yield clues, as will talking to neighbours and local traders.

Home buyers who are suspicious about possible unpleasant developments should call the local council's planning department. And they should brief their surveyor and solicitor to be on their guard for potential problems.

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