Breaking news! With the unprecedented hot summer this year, there will undoubtedly be an avalanche of subsidence claims so, insurance companies look out, there could be a tsunami coming your way!
Does anyone remember the scorching hot summer of 1976? If you do, you will recall that months or years later, this was followed by an avalanche of subsidence claims, with regard to the movement of the foundations of properties, as a result of the sub-soil drying out.
Well, we may have a repeat of these geo-thermal circumstances, over the whole country. Clay is the predominant soil of the UK and its stability is dependent on its water content. Thanks to the heat wave, the sub-soil could be drying out again and, if so, it’s going to shrink and therefore, it will move the foundations of some properties.
Blight on the sale and value
Although consumers have become used to the concept of buying a property which has had past settlement rectified, nevertheless, in its untreated form it can represent ‘a blight on the sale and value’ of a property.
Since those difficult days, building insurance companies have become very difficult indeed and house owners are now terrified to change building insurance providers, when they buy a property, since they don’t want to be caught in a trap between the old and the new insurers, where both of them play the ‘blame game’ and try to ‘wash their hands’ of any potential liability.
Any property with a nearby tree, which could exacerbate the settlement problem by drawing out the moisture from the sub soil and therefore, encouraging its movement, is treated as a scourge and often certain insurers will not provide cover in these circumstances or may charge a hefty premium to account for this.
There are patches of the UK which are built on sandy soil, which has far less water retaining properties and is much more stable under most adverse weather conditions.
In some notable cases, the problems from settlement have been so damaging to the property, it has justified the complete rebuilding from the ground upwards.
Far from being put off, some of the more adventurous potential buyers of residential property are attracted by a ‘juicy’ signed off insurance claim, which they can then put towards their own refurbishment of a property, which they would like to buy.
For the more pedestrian homebuyer, the spectre of possible settlement will ‘frighten the life out of them’ and they would not ‘touch the house with a barge pole’.
Uncertainty undermines confidence
The characteristic of settlement problems, is that they can take many years to define and therefore, the uncertainty during this time undermines the confidence of the prospective purchaser. The usual process to assess the extent of the problem is to apply ‘tell-tale’ glass panels across the cracks, which are then left for a period of time, to demonstrate whether the settlement is old or new. Once this is ascertained and it is new settlement, one is obliged to go through a labyrinth of surveyors, structural engineers, quantity surveyors and contractors, in order to end up with a prescribed cure and cost rectification analysis, which can take years.
If a blue-chip subsidence specialist contractor has carried out corrective works to the foundations of any property and given it their seal of approval, it should help to remove the inherent fear that most purchasers/potential mortgagees may have with this problem.
When all the claims come to fruition, they can amount to many hundreds of millions of pounds (if not billions) and since Lloyds are the usual underwriters in these circumstances, they will have to shoulder the brunt of the problem.
Not good news for insurance companies
This is not good news for insurance companies and premiums could rise as a result, whilst the shares in this sector will suffer. A canny investor may choose to anticipate, this by shorting them.