Ashley Ilsen

Subsidence is a term feared by many homeowners. Subsidence is caused when the ground beneath a property sinks, which causes the foundations of a house lower and become misaligned. It can have a considerable impact on both the value, the living conditions and structural integrity of a house.

From a developer’s perspective, it is important to spot the early signs of subsidence and knowing what to look out for. Otherwise, a house with subsidence can plummet significantly in value.

There are various different causes for subsidence. It’s important to know what these are in order to better check a property for this condition. Some of the main cause of subsidence include the following:

Types of Subsidence

Whilst understanding the causes of subsidence can help to prevent it, spotting the signs of subsidence are also vital in helping to protect a house from the condition as best as is possible.

How to Check If a Property Has Subsidence

There are numerous ways subsidence can present itself, the main ones being as follows:

• Cracks around doors and windows – cracks from subsidence can appear both outside and inside the house, they are typically found near a property’s doors and windows, and spread significantly faster than other types of cracks.

• Crinkling wallpaper – when wallpaper begins to crinkle this can also be a sign of subsidence, typically being around where the wall meets the ceiling.

• Doors and windows jamming – when you begin to have difficulty opening or closing any doors and windows to a property this could be due to subsidence; the sinking of the house’s foundations cause these features to become misaligned.

When spotting signs of subsidence, it’s vital that these are checked by a surveyor, who can inspect the property to confirm this.

If you see cracks in walls, you could be dealing with subsidence

What to Do If My Property Has Subsidence

If you think your property is suffering from subsidence, it’s important to contact your buildings insurer as soon as possible.

Typically, the quicker subsidence is noticed the easier it is to manage. Your insurer will organise for a surveyor to come round and inspect the property. The surveyor can then confirm whether it is subsidence or not.

You can get insurance for subsidence, however most standard insurers will not cover a house that is, or previously has, suffered from subsidence. Therefore, when looking to buy a house it’s important to learn about its history, and whether it has at any point been affected by subsidence.

If you are buying one or more properties, it is important that you fully understand how stamp duty liability works, as it does not work in an identical way to buying just one house. But how do you understand the differences between the two? We take a closer look at the things you must be aware of before purchasing multiple buildings. 

What are linked transactions?

Knowing what is meant by a linked transaction is important when it comes to stamp duty liabilities, as this will determine how much you will end up having to pay.  In summary, a linked transaction is when a single party buys at least two properties from the same seller. This includes a piece of land, flats, or a house.

A transaction is also considered to be linked if the person connected to the buyer (for example, a business partner or relative) decides to buy a property from the same seller.

What’s more, if the purchase is part of a scheme or a single arrangement (or part of a number of transactions) then this is also considered to be a linked transaction.

How much stamp duty tax do I need to pay?

In terms of the exact amount you will need to pay if you are buying two or more properties (and these are considered by the HMRC to be linked transactions)  this will be calculated based on the total value of all these linked transactions. This is opposed to calculating the tax owed based on each property’s individual value.

For example: if you decided to purchase two properties, both worth £125,000, then the HMRC would require you to pay stamp duty on its total value of £250,000.

It is important to remember that you will not be required to pay stamp duty on the first £125,000 of a transaction’s value. However, you will need to pay stamp duty at a value of 2% over this initial amount.

That means that with regards to the example given above, you would be required to pay stamp duty that is worth approximately £1250 in total.

You should also keep in mind that Stamp Duty Land Tax has increased since 1 April 2016. This on top of current rates of purchases for additional properties that are residential. This includes second homes as well as buy-to-let properties.

Are there stamp duty exemptions for additional properties?

Yes, not every single property will be required to pay stamp duty. For example, this is no requirement for single properties or properties that are considered to be linked transactions with an overall value that is below £125,000.

In the majority of cases, if you are looking to invest in land or property, you will usually need in order to be able to finance such an investment, but it is possible to purchase with little to no money.

How do you achieve this? Prior to the financial crash in 2006, it was commonplace for mortgage lenders to happily provide 100% mortgages to buyers. These days, finding this kind of mortgage is extremely rare. We take a look at the different alternatives that are available to you, should you be interested in buying land but have little cash upfront to buy it with.

Borrowing against your own property

It could be the case that you do not have much in terms of cash, but do have a considerable amount of equity that is locked in your current property. If this sounds like you, it could provide a way in which you can purchase land, if you decide to extend the mortgage in order to release the equity locked up in it. That would enable you to then use these funds to invest elsewhere.

If you were interested in pursuing this option, there are some questions that you should carefully consider before making any final decisions. For example:

• Not all mortgage providers will necessarily allow you to borrow additional money against your house so you can invest in property: this is something you will need to verify with your mortgage lender or broker.
• The residential mortgage will be assessed on your income, so you will need to make sure you have enough earnings to be able to release equity.

Look at a joint-venture property development

Have you considered looking further into joint-venture property developments if you want to purchase land but have a small amount of money? It is worth taking a further look at.

But how does a joint-venture work in practice? The process is relatively straightforward in nature: you find a development project, research it and then look for another person to join the project who is willing to provide the deposit for it, and may also need to provide other forms of security.

This joint venture can work out profitable, as both parties ultimately share profits upon completion.

Providing additional security

Another potential option for you to be able to buy land with little money is to provide additional security to a lender. This is usually in the form of a high-value possession, in most cases this will be in the form of a property but could be a car or another costly item. Lenders in the property sector will offer 100% borrowing to purchase land if the collateral is given, is this presents less risk to the lender.

There are a variety of things that can end up not going to plan when it comes to a property development project, even if you have planned the project well and manage things accordingly. For example, common issues that can cause construction site delays can be things such as extremely bad weather (for example, torrential rain) making it difficult for work to continue, an important supplier failing to deliver, or overbooked construction teams.

Unfortunately, these delays can lead to you incurring penalty fees if you have taken out development finance in order to fund the project. However, you  could look at development exit finance to help you avoid potential charges. Wondering how it could help you? We take a closer look.

Should you consider refinancing your development project?

Before going ahead and making the final decision as to whether or not you should refinance your build, you should carefully consider the options available to you.

For example, what are the terms and conditions of your current project, and would you have to pay additional fees for deciding to refinance that could outweigh any advantages when it comes to changing?

What’s more, is there room for contingencies: a general rule of thumb is to consider nine months into the project as the benchmark for potentially considering refinancing as an option (if you have taken out a 12-month development finance loan).

At this stage, it would be expected you were confident you were going to meet the exit deadline promptly, with most work having already been carried out by this point. If you are not confident that this will be the case, this would be when most developers would look at refinancing options available to them. 

Extending the borrowing term

In the majority of cases, property developers who decide to get development finance will have the term of this funding limited to just 12 months. This can make it very difficult timetable wise, should something go wrong with construction, or completing on sales.

This is why it is worth making sure you have arranged your development finance for the longest possible term either by doing it yourself or through an experienced broker. Furthermore, you should also find a provider who will not charge you fees for early repayment, in the event that you complete the project earlier than anticipated.

Reducing the cost of development finance

Exit finance rates can be cheaper than other kinds of development funding, meaning you can potentially save a considerable amount of money on the cost of lending if you are carrying out a construction project. In addition, interest that is accrued on exit finance is retained, which means that you can put all available capital on completing the construction project

Using refinancing to fund your next project

Not only can refinancing your development project reduce penalty fees should your project has delays, but it can also be useful for property developers looking to get their next project started, as refinancing can help fund this.

Many developers who are looking for cost-efficient ways to fund their project use refinancing in order to have site acquisition, design as well as planning all underway whilst currently finishing off a project. This means when the current project is finished, a property developer can immediately get started with the next construction build.

Getting the most out of a land sale

With the housing crisis affecting people nationwide, it has had a knock-on effect on agricultural land by inflating its value, and it is thought that it will continue to increase further if the government follows through with its promise to build and provide over 300,000 new properties each year.

When it comes to privately owned agricultural land is estimated to be worth approximately £20,000 per hectare on average in the UK. However, this could rise to as much as £2 million per net developable hectare if planning permission has been gained for housebuilding in certain areas across the country.

Consequently, the potential to capitalise on land profit is encouraging many individuals to look at getting planning permission for land assets to then sell on to house builders. However, there are some important aspects to take into account that can affect a land sale, as well as the process of selling and tax implications too.

Things to consider when selling land

• Land assemblies: most landowners often pool their assets into what is otherwise known as a ‘land assembly’ to make it more profitable to sell land. This is because individually, small amounts of land will not be as lucrative for property developers, who are generally less interested in small sections of land.
• The time and cost involved: it is worth remembering that it can take some time to get planning permission alongside selling land as there are many different stages that can be involved. On average, this could take 18 months but can take years: the larger the site, the longer it will take.

The process of selling land

It is typically a three-step process when it comes to getting planning permission and selling land to a property developer. This works as follows in most cases:

• The Local Plan: prior to getting planning permission, you will need to make sure that your land has formed part of the council in your area’s Local Plan: which means the document that refers to your local area’s housing strategy. It may take some time before this is achieved.
• The application: as soon as you’ve managed to get the land included in the Local Planning you can get planning permission.  To apply, you will need to draw up a housing development scheme, which the land promoter can do on your behalf. This scheme is then put to public consultation.
• Sale: if the public consultation goes well land your planning permission has been granted the land agent and land promoter can broker the sale of your land.

Tax implications of a land sale

There will be implications with regard to liability on your sale proceeds as well as inheritance tax applications. The exact tax implications will be depending on the type of land being as well as how you intend to sell it.

Main residence land sale: if it part of your main, long-term residence it can qualify for Principal Private Residence Relief (PPR) this will exempt you from paying capital gains tax (CGT) at 28%.

Land assemblies land sale: the tax implications if selling as part of a land assembly can vary, therefore always seek specialist advice for further details.

Separate land from main residence: this will incur income tax up to 45% in total, or capital gains tax at 20%. The tax you will need to pay will depend on the intention when acquiring the land – for example, whether it was a family asset or a long-term investment.