Property: Cracks in the wall which can cost dear

Put the problems right in a house, and it will become that much easier to sell - unless the fault is due to subsidence. In that case, any number of reports saying that it is as solid as a rock can fall on the deaf ears of both insurance companies and nervous buyers. Even though thousands of pounds may have been spent on remedial work, difficulty in finding cover can blight the sale of a perfectly sound property.

Since insurance companies first included subsidence in policies, during the early Seventies, they have paid out heavily. Last year 46,000 claims cost the industry pounds 393m, representing an increase of pounds 259m in just four years.

The normal pounds 1,000 excess can rise to as much as pounds 7,000 where the insurers judge that the risk is very high. If the building is in the process of being sold, there is a danger that the buyer may either drop out, or try to negotiate a reduction.

Sometimes the insurance problem rears its head only a few days before contracts are due to be signed. Most subsidence is the result of the shrinkage of clay soil. During hot weather large cracks tend to appear in walls, particularly around windows and doors, as the soil dries out. If the building has shallow foundations and does not recover, it will probably need underpinning.

When Susan Randall and her husband bought their large Victorian house in south London last year, they knew that it had been underpinned 10 years earlier. They wanted to convert it back from flats to a family home, well aware of the task facing them.

Susan says: "We would never have considered buying the house if there had been any new signs of subsidence. So we had two surveys, and both stated how well the work had been done. The one thing we never expected was to have problems with insuring it.

"But every company we called refused to consider covering us, because there had once been subsidence. After hours telephoning a long list of companies we went to a broker, who could not find anything either. In the end we had to take over the previous owner's policy, but this meant insuring the house with an offshore company we had never heard of. Also, they put the subsidence excess at pounds 5,000."

Another woman, whose insurance company paid for her house to be underpinned, now regards herself as a hostage to that company. "No one else would consider taking me on. My greatest worry is how it might affect the sale of the property. I rang round five or six insurers and none of them wanted to know. That could put off a lot of buyers."

Insurance companies argue that staying with the same insurer is more efficient, as it cuts out the issue of liability. If problems arise again with a property, there is no danger of protracted arguments about whether it has been caused by a new incident, by previous incidence of subsidence, or by bad workmanship.

Agreements between insurance companies will mitigate some of these factors but not totally remove them. Guy Gibson, of the surveyors and valuers with Hamptons International, sees daily the after-effects of underpinning work. "I don't think lending institutions and insurance companies realise how they can frustrate a market-place, especially when all the right things have been done by an owner.

"If a purchaser still can't get insurance, there must be a gap in somebody's knowledge. Anyone trying to arrange a bank or building society loan needs an approved insurer, and we often have to help them. There is a false stigma attached to an underpinned property. After all, it is likely to be in a much better state than one that is still a potential risk. In the south, probably one in 50 properties never comes on to the market because the owner is afraid of the consequences."

David Neave, of the Royal & Sun Alliance, which has some 20 per cent of the household market, says that the company is prepared to take on underpinned properties. No one should be turned down out of hand. "We would first need to establish that the work had been undertaken to a satisfactory standard. But this can take time, and often time is of the essence."

One buyer, who has found that the company does live up to these principles, recently completed on a house in the West Country that had a history of subsidence.

He does not wish to be named, since he complains that the owner tried to hide the fact. "Not even the estate agent knew, and it was only when we commissioned a full survey that it was mentioned, and then only as a minor detail, when in fact it had really been quite serious.

"We talked to someone at the head office of Royal & Sun Alliance, who asked for a structural engineer's report. On the basis of that report, they agreed to insure the house and without increasing the subsidence excess. We also managed to reduce the selling price."

Buyers often use underpinning as a negotiating weapon, even where insurance is not a problem. Rob Hooker, of the Subsidence Claims Advisory Bureau, says that although it is unfair, properties are blighted. "I have a client at present who is asking for pounds 15,000 off the price he is paying for a large Victorian house in Kent, even though it has no current problems."

The bureau also sees a great many people who have been turned down by the very insurance company that carried out the work on their property. "Some companies put a red line through whole areas, a blanket discrimination. Others have a policy of increasing premiums after subsidence claims have been made. Often subsidence is blamed for naturally occurring small cracks that can easily be filled and decorated."

The bureau offers a Pups (previously underpinned) policy, subject to survey. The premium is about 20 per cent more than the average, and the excess is pounds 2,500. Recently it has launched a lend and repair scheme, in conjunction with Barclays Bank, which enables people to buy a house with subsidence that does not qualify for full insurance.

What worries owners most is what this suggests about the quality of the work undertaken. "If insurers pay out thousands of pounds for a job that is carefully monitored, they should all accept that it has been done to the highest standards. By refusing cover, they put doubts into our minds," says Susan Randall.

Subsidence Claims Advisory Bureau: 01424 733727