Want a basement? Don’t dig a hole in your cover

4 May 2014, The Times

Families are increasingly choosing to dig basement extensions as the cost of moving rises, but the vast majority are failing to arrange the proper insurance, according to brokers.The basement dig, no longer a central London phenomenon, is spreading to areas such as Wandsworth, Clapham, northwest London and Oxford.The estate agent Knight Frank says that the number of basements being built in Oxford has doubled over the past two years, and Savills expects the trend to expand to other cities, including Cambridge, soon.

Tom Bill of Knight Frank said: “You know the trend has taken hold in an area when a square foot of basementis worth the same as a square foot above ground. That valuation method has spread beyond prime central areas like Kensington and Chelsea and into Wandsworth, Battersea and Clapham over the past 12 to 18 months.”

However, a survey by the broker Insurance Tailors in 2013 showed that only 5% of people who had carried out structural work, including digging basements, had informed their insurance company.This meant that, for most, their home insurance cover would have become void the minute they had started the work, which in turn means neither they nor their neighbours would have been protected against any structural damage it caused.

Basements have become increasingly popular in areas where rising house prices have made the cost of moving expensive. Many families prefer not to lose garden space to extensions, and the technology for basements has evolved — it is now possible to have full-height rooms with natural light.

Ed Meyer of Savills in Cambridge said he expects that, as house prices in the city start to reach £1,000 per square foot, more people will consider digging down to free up extra space. He said the trend will begin to pick Version: 1 up in the best streets in Cambridge soon. It typically costs about £400 per square foot to dig a basement, so it can be a good investment.

There is a saturation point, however, and the trend in central London for giant basements four floors deep appears to have turned. Charles McDowell, a top-end estate agent, said: “The appetite has shifted to more modest conversions that dig down only one floor.”

Sam Sproston of Knight Frank in Wandsworth and Clapham, said he has seen the number of basement digs grow by about 25% in the past year. In south London, this typically involves adding an extra 700 sq ft to a 2,700 sq ft house.

Caspar Harvard-Walls of Black Brick said: “In central London, the square footage value ofbasements is now treated as the same as the rest of the property. Outside of these areas, values are treated differently — historically, agents valued basement space at approximately 50% less than upper floors, but this is starting to change. Basement excavations can affect the values of a street — a successful sale can bring prices up to a new level.”

However, a basement extension can bring down values of neighbouring homes in the short run. Will Hollest of the buying agent Robert Bailey Property said: “Any neighbour considering selling while the basement construction is under way will find that it will affect their property’s value, especially in outer London areas.

“Landlords are particularly badly affected by basement conversions. Most works last between 18 and 24 months and landlords will almost certainly have to drop the rent to secure a tenant. A prime central London house adjacent to a property about to commence excavations is almost unrentable.” He added: “Landlords can insist that noisy works are limited to sensible working hours, when many prospective tenants will presumably be at work. The landlord would then be able to demonstrate to tenants that disruption would be kept to a minimum. Extending the break clause in the tenancy agreement is also away to guard against losing tenants.”

Neighbours also need to beware of cracks and structural damage that can result from digging a basement, particularly in terraced homes. The damage may not be covered in the insurance policy and it would often be up to the homeowner building the basement to cover the costs. In the worst cases, digging can lead to roads collapsing — as seen in Chester Row, Belgravia, when the street collapsed under the weight of a skip in 2010.

Insurance Tailors advises neighbours to check the homeowners digging the basement have obtained adequate cover — from taking out specialist insurance policies to setting up special contingency funds in case of damage.

A party wall award — a legal agreement between neighbours — should be in place before work begins. This aims to mitigate the level of disturbance, sets out when work can be carried out and includes an assurance that any damage to walls will be rectified within a specified period.

Case study: Room for growth

Lana Wrightman is about to excavate the basement of her home in Hackney, east London. The previous owner started the underground extension, digging out to the full width of the house, but moved before the project was finished. Wrightman shares the house with her husband Michael, an underwriter, and their daughters, Edie, 3, and Clara, 2. She wants to dig deeper to raise the basement’s ceiling, making more space for her growing family. The boss of her own marketing agency, Wrightman plans to release equity from the house to finance the work. An architect has been hired and an application for planning permission will be lodged shortly.

Risk assessed

Insurance Tailors recommends specialist policies such as renovations insurance and non-negligent party wall cover, which protects against damage to third-party homes. A typical policy on a Victorian terraced house with £250,000 worth of work costs £800-£1,000.

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