Would you purchase a property with subsidence?

Hi Ronny

If the underpinning was done by a decent contractor at the bequest of an insurance company then you might find that the property is the most stable on the street. What you need to check are the guarantees that were offered and documentation relating to subsequent monitoring of the problem after the underpinning work was completed.

Having said all of this, some mortgage lenders and some insurers will not like the fact that the property has been underpinned and therefore, mortgage-ability and insurance could be affected, albeit not usually catastrophically. This should be reflected in the asking price though.

If in doubt take advice from a structural surveyor. He will be able to ask all of the right questions of all of the right people for you too. For the sake of a few hundred pounds this could prove to be a very good investment. I'd be very surprised if the vendor hadn't got all of the above all ready sorted. If he hasn't, tell him that before you go any further that you want him to pay for all of the above. He could say no, in which case you have a commercial decision to make, but given he wants to sell he might well agree to foot the bill 🙂

Good luck.
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Dear Ronny,

I have over 20 years experience in various guises in the mortgage industry.

This will be an over simplification as I am sure there are always exceptions to the rule, but I would not recommend anyone considers a property that has been underpinned for the reasons you have already mentioned.

It is just not worth the risk, so my advice is walk.

I have to agree with Neil on this ( sorry Mark ) the area where I live is worst for subsidedence in London , it tends to always be an issue when selling regardless of who or why underpinning was required.

The Missus was an Insurance Underwriter for many years and to be honest some of her horror stories regarding this issue have a Laxative effect that still haunts me.

WALK AWAY WITH YOUR HEALTH AND WEALTH INTACT!!!

Hi Mark & Neil

First of all I would like to say a big thanks for responding so quickly. This is my first post and I was very impressed about the quick turnaround. With my first post will come my first donation this evening!

Whilst it would appear that structually I may be comfortable with the property in that it is now stable, the reality is that I may or may not find a lender or insurance and if I do I should expect to pay a premium!

There is little doubt that the asking price has taken this issue into consideration, however the question remains whether this property is worth the risk? If I can find a lender now, who is to say there will be any at all in 2 years time and maybe the ones that will lend will charge such a rate that the margins will be too small.

Thank you for your comments as they have certainly provided food for thought!

Reply to the comment left by "micky alderson" at "10/06/2014 - 17:37":

Wow that certainly sounds like a voice of personal experience! Thanks for the advice.

We were buying a property for our own residence 2 years ago that had a history of subsidence. Our mortgage company asked us to provide assurances that the property was now in a structurally sound state and also to provide a letter of assurance from an insurer that full buildings cover would be provided on our purchase (not easy to obtain in the circs!).

We had a full structural survey carried out by the original structural engineer that did the underpinning work in 1991. This included a comprehensive report with copies of the original paperwork and the up to date assessment clearly stating that the property was in a very sound state and that there was no evidence of further movement since 1991.

We also spoke with the chap that carried out the lenders valuation and our initial homebuyers report and he stated that the findings of the subsequent structural report was proof enough that the house was sound. He said that from his own personal experience with subsidence repair work that he felt the house was a safer bet than others in the street because of that work carried out 22 years previously with a new survey proving that there was no further sign of subsidence during that time.

Unfortunately, not good enough for our lender and their underwriters (as they kept informing us) because they wanted even more information. It appeared that the 1991 survey had mentioned another case of subsidence many years earlier but no other details of when or what it consisted of were evident, however the underwriter wanted the full facts before making a decision whether to lend on the property. We made what enquiries we could and despite obtaining some basic details of a company that may have been involved in the previous claim it transpired they had long since ceased trading and no information was to be found to help our cause.

We were advised that other lenders may not be so concerned with the older and somewhat irrelevant case in making a decision on whether to lend or not but we decided that the cost of all of our efforts, including only finding one insurance company that was prepared to insure for future subsidence and at quite a cost, was too much of a risk for us to take on. After all we would be leaving ourselves open to future problems every time we needed insurance, a remortgage and most important of all, if and when we came to sell the property ourselves.

It was an expensive four figure experience that taught us that unless you were buying an absolute dream home and probably for cash, anything other than this should be avoided in future!

Very interesting reading.

For the investor who does all the due diligence I've suggested above he could have:-

1) The best yielding property of its type in the area (value lower rent the same)
2) An asset which appreciates at the same rate as all the other properties, possibly better as the underpinning (which should be guaranteed) stands the test of time.
3) Plenty of lenders and insurers who will not have a problem with such a deal providing all of the boxes can be ticked
4) Better cashflow than he would have for a similar property due to the higher yield.
5) A fantastic opportunity to snap up a bargain because most other purchasers will follow the same thought processes as those who have posted above.

Of course, Ronny should walk away if the boxes can't be ticked based on my recommendations. However, to walk away before asking the questions and haggling hard over the price does not make sense to me.

Ronny should also talk to a good broker about mortgages and insurance. If there's only one lender/insurer interested that tells its own story but at least find out before making a decision, there might be dozens.
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Reply to the comment left by "Mark Alexander" at "11/06/2014 - 08:26":

I agree with everything you have said Mark and yes an investor could be walking away from a bargain.

However, I stress this is only my experience and not a rule in all cases, what may make sense now and be perfectly fine to find finance on and insure currently can change in the future.

If you purchase any property that is difficult or unusual to lend on and insure you will find that it affects it's value in the future from the laws of supply and demand. If fewer people are able to finance or insure the property you reduce the demand for it and hence as supply is equal on one property the price is affected negatively.

Lending criteria is a fickle beast and when times are hard lenders pull criteria and go for the easiest least risk lowest hanging fruit. If a lender can use all its funds on bog standard houses with no issues why even bother entertaining something that has been underpinned in the past as it makes no economic sense for the lender to go to the trouble.

We have seen the same thing happen to new build flats, ex-LA, flats above commercial, non standard construction etc etc.

In my front line mortgage days if I thought there was a significant chance of unforeseen risk I would just refuse to do the deal safe in the knowledge that I did not have a client that could come back years later and say why did you let me do that Neil.

Dcs experience above is a good example of the fact that you cannot anticipate the thousands of unknown unkowns that can come back and bite you.

Reply to the comment left by "Neil Patterson" at "11/06/2014 - 08:57":

That's just business though Neil. For example, new build flats were the original backbone of BTL in 1996. The property market boomed and everything was rosy but what if it had gone the other way?

Commercial decisions need to be made. Those who over analyse risks rarely end up owning a property portfolio.
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Hi Ronny,

Additional to the good advice you have already received, I would add "think of your exit strategy".

With property investment, I've always found that it works best to start with the end in mind and work back from there.

When you come to sell this property, the subsidence will still be an issue, and your prospective purchaser, perhaps posting on a forum such as this, will be advised to walk away.

I have always made it my policy to buy a property that I know I can exit with no hassle, that would appeal to an owner occupier, not just another investor.

This has served me well. Property is a fairly illiquid asset and you never know when life might throw you a curve ball that makes you have to sell. If that curve ball comes along, I want to know that I have a clean, quick exit to an owner occupier, not a property that is going to provoke a question like this on a forum!

These types of properties are sold to specialist investors, usually cash buyers, with deep pockets and experience of these problems.

Hope that helps some more?