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What are my options now that I have holes under my house?

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  • 20/10/2003
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Following an environmental search my client was told a number of holes were found beneath the property and the lender has pulled out awaiting a more detailed search. Under what circumstances will the lender refuse to lend and if they do will the client lose any money that they have already spent?

Environmental searches can now be readily obtained from a variety of service providers, and the market in these searches has been spawned by the increasing trend towards development of brownfield sites. Typically, the information provided will tell a prospective buyer whether there has been a historical land use which means it is potentially contaminated. A buyer ignorant of these risks could be burdened with the expense of ‘cleaning up’ the land.

Most search providers will refer sites with a potential problem to professional environmental consultants and I suspect that this is what has happened in your client’s case. If the consultants have expressed the opinion that there is a high degree of risk the lender may withdraw any offer of finance. The bank or building society has to be satisfied that if they have to repossess due to the borrower’s default the property is readily marketable and they will recover the loan. The lender’s underwriter will take into account all the circumstances of the case including the degree of risk posed by the environmental problem, the overall value of the property and the loan to value ratio. They may also require that additional searches are carried out (to check, for example, that there are no disused mines) and call for a full structural survey.

Your client will have incurred costs in relation to their mortgage application and will at least have lost their survey fee. Their lawyer will almost certainly have started looking at the contract documentation resulting in professional fees. A local search costing £150 on average may already have been submitted to the local authority.

The Government is currently carrying out an overhaul of the whole conveyancing process and one of its key proposals is the introduction of Home Information Packs (HIPs). Within the industry HIPs do not have universal support with many professionals arguing that the Land Registry’s e-conveyancing project offers a more strategic effort to address the real problems inherent in the current conveyancing process.

Many also question whether, in a market increasingly driven by the need to trim costs, there is an appetite for incurring the additional expense associated with HIPs.

Unless, and until, any reforms are introduced the time-honoured principle ‘let the buyer beware’ continues to apply. There is no obligation on the seller to contribute to the expenses your client has incurred. The positive aspect is that at least the buyer, as a result of their lawyer carrying out the appropriate searches, has become aware of a major problem before committing to buy the property.

Obviously, a lender may refuse to lend to any applicant, and need not give any reason for the decision. Following the detailed search, the lender will seriously consider any structural integrity issues or whether the property is re-saleable. It goes without saying that the security of the property is the lender’s primary concern.

Possible reasons for the holes you refer to could relate to there being a former mining site, perhaps ventilation holes or they may even be related to pollution control. On the other hand, some lenders may be completely happy with the results of more specialist reports and be prepared to release funds for completion and avoid your client any undue expense or loss of fees.

To avoid the risk of clients’ disappointment and loss of fees in the future, with ex-council properties it is always worthwhile contacting the lender and asking to be put in touch with their valuer or surveyor. An advanced conversation with the local valuer about the property you are looking to mortgage could be enormously helpful. The surveyor may be able to provide some historical information on other flats in the area, alternatively a building survey is available for all residential properties and provides a full picture of the construction and condition, including the roofs, chimneys, walls, floors, ceilings, doors and windows. It is a more comprehensive report and should pick up on any problematic issues sooner rather than later.

You state that the lender has pulled out. If a formal mortgage offer has been made the valuation fee and any arrangement fee is most unlikely to be refundable as the lender has incurred costs. Furthermore, solicitor’s fees, conveyancing disbursements including land registry and local authority searches will also need to be settled by your client for whatever work the conveyancer has instigated or completed. Regrettably, this could run into hundreds of pounds.

Depending on precisely how far the application has progressed along the lender’s process, some or all of any fees paid to date could be forfeited. Most decent lenders will only retain elements of fees if they have incurred costs – so once the valuer has been instructed, you wouldn’t expect a refund of any valuation fee. However, any administration fee element might or might not be refunded, dependant upon the lender’s terms.

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