In this article I’m taking a deep dive into Japanese Knotweed and the guidance RICS surveyors are given on assessing the value of a property affected by Japanese Knotweed. I’m sure you’ll find it interesting and useful to find out what they are asked to do and how you can mitigate against some of the factors that could mark down the value of your property.
Whether you are looking to buy a Japanese Knotweed Property or you are looking to get finance against one, this article will take you through the key points of the surveyors guidance and you can even download a copy below for you to read for yourself.Japanese Knotweed was first discovered on the slopes of volcanoes in Japan which may go some way to explaining its resilience.
Investors that invest in Japanese Knotweed properties are taking advantage of a hugely undervalued market.
A property is deemed as being affected by Japanese Knotweed if the Japanese Knotweed is recorded as growing within 7m of the boundary of the subject property.
There is a fear that exists, many people say a flat no to Japanese Knotweed Properties and they do come with their issues.That reduces competition and gives advantage to savvy buyers.
Here’s the key information to help you make great returns from Japanese Knotweed Properties.
To begin with there are 4 categories of Japanese Knotweed infestation as detailed below:
Enter your text here…
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Risk Category |
Description |
Chances of Mortgage Approval |
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1 |
Japanese knotweed is not on the property but can be seen on a neighbouring property, which is more than 7 metres away from the boundary. |
More likely to be approved at higher Loan to Value (LTV) as deemed lower risk.
Concern from some lenders, but still quite possible. |
|
2 |
Japanese knotweed is seen on a neighbouring property, but is within 7 metres of the boundary. |
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3 |
Japanese knotweed is present in the boundaries of the property, but is still more than 7 metres from a habitable space (you may need to have further investigations completed by a qualified or experienced person). |
Possible but likely to require a specialist survey before lending is formally approved. |
|
4 |
Japanese knotweed is within 7 metres of the habitable space and/or causing serious damage to outbuildings, drains, paths and boundary walls (With this fourth category, a further investigation would be required by an appropriately qualified and or experienced person). |
Possible but likely for repair work to be carried out before approval. Perhaps condition of mortgage offer is added for work to be completed, or even a retention held by the lender at the point of the mortgage completion, to be released once repair work is signed off. |
Data from: http://www.onlinemortgageadvisor.co.uk/other-mortgage-info/mortgages-and-japanese-knotweed/
Valuation
Japanese Knotweed Properties are cheaper to buy than normal properties. Because it is such a fast growing and invasive plant it will affect most properties at some point, and when it does, the first movers will be the ones to benefit.Read more on that in my article below:
According to the latest Land Registry price index, the average UK house costs £228,000. The presence of Japanese knotweed has diminished the value of affected houses by 10 per cent, creating an average loss of £22,800 to property owners.
Based on this information and our experience, we recommend taking 20% off of the value a property would achieve without being affected by Japanese Knotweed to be sure of coming in ahead of expectations when making your calculations.The Royal Institute of Chartered Surveyors (RICS) have published an information paper IP27/2012 titled “Japanese Knotweed and Residential Property”.This alerts surveyors to the problems that knotweed can cause, and lays down a framework for evaluating and mitigating the risks.
Although written in 2012 it is still the standard for surveyors today so it’s important to understand their guidance.Key takeaways from the aforementioned report are as follows:
4.6.1 When preparing a valuation, the valuer or surveyor must account for a variety of issues and factors. Where Japanese Knotweed affects a property, the practitioner requires a measure of the magnitude of the problem. An estimate of the cost of treatment and subsequent repair can provide this.
If you put the 10 year Japanese Knotweed management plan with an insurance backed guarantee in place BEFORE your survey you negate a lot of the issues the surveyor will be be asked to look at. On survey, the treatments and refurbishments required should be completed to attain maximum value so evidence of damage will be minimal or zero and there will be a long term guaranteed plan already paid for in place. This all helps the surveyor come to a higher valuation.
4.6.5 Using the Building Cost Information Service(BCIS) figures published by RICS in December2011, total remediation costs are likely to be as indicated below:Repair Cost (£)Drain replacement 1,913New patio 1,872New greenhouse 1,070Part fence replacement 108New garage 4,700Treatment costs 5,000Legal and professional fees 750Total £15,413 plus VAT
If there is evidence of repairs required then the RICS Surveyor will take this into account. Repairs need to be completed before the survey to negate this.
4.7 Impact on value4.7.1 By quantifying the likely cost of treatment and any necessary repairs in this way, the impact ofJapanese Knotweed can be taken into account in the valuation process and reflected in the same way as any other defect or item of disrepair.4.7.2 Figure 1 illustrates a particularly bad case of Japanese Knotweed in a domestic situation. Once there is a broad acknowledgement that most infestations are less troublesome than this and can be controlled without prohibitive costs, Japanese Knotweed can be considered as just one of the many factors that have to be taken into account when preparing a valuation.4.7.3 If treatment is deemed necessary in cases where Japanese Knotweed is present in the grounds but no damage has been caused to the property itself, the sole expense may be the cost of the treatment itself.In some circumstances, this may have no adverse affect on value.
In some circumstances, this may have no adverse affect on value.
5.6 Properties previously affected byJapanese Knotweed5.6.1 Although valuers and surveyors may not see Japanese Knotweed during their inspections, they may be aware that the property has been previously affected. This information may result from their knowledge of the area or as a response to a ‘seller’s questionnaire’. Please note: because the standards of previous treatment regimes adopted by property owners and their agents have been inconsistent, the effectiveness of older treatment programmes must be cautiously assessed.5.6.2 Whatever the source of the information, one of two responses may be appropriate: • where there is no satisfactory evidence to show that Japanese Knotweed is currently undergoing a properly planned programme or that the planned programme has been properly completed, further investigations will be required; or • where there is satisfactory evidence to show that Japanese Knotweed is currently undergoing a properly planned programme or that a planned programme has been properly completed, further investigations will not be required.
The above clauses make it clear to the surveyor that she must get satisfactory evidence of a properly planned programme. It is up to us as investors and property professionals to provide that.
5.7 Management plan5.7.1 Once Japanese Knotweed has been identified, and an appropriately qualified and/or experienced person has further investigated the problem and provided a report, a Japanese Knotweed management plan should be established. This management plan can provide the necessary reassurance to both lenders and buyers that aJapanese Knotweed problem is being properly managed.5.7.2 Although the methods of tackling Japanese Knotweed will depend on the commercial choices and preferences of the contractor, the management plan should be based on that included in the Code of Practice published by the Environment Agency and should thus be consistent across the industry. As a minimum, a management plan should include the following features: • A description of the property with an accurate record of the Japanese Knotweed infestation. • A scaled plan with dimensions and supporting photographs would be particularly useful. • The full details of the contracting organisation and a description of the methods to be used to eradicate Japanese Knotweed. • A treatment schedule that is updated as treatments are carried out. • A completion certificate that confirms the treatment is complete and that the Japanese Knotweed at the property has been remediated.5.7.3 Valuers and surveyors should take account of this range of information when deciding whether the evidence of previous treatment regimes is adequate.5.7.4 To meet lender requirements, other features could provide additional reassurance, as detailed below. • The current owner must pay all costs associated with the management plan ‘up-front’, so that the treatment programme can be completed without relying on financial support from subsequent owners. • The management plan should be transferable to any subsequent owners. • The management plan should cover the whole of the property and not just those affected parts identified by the original valuer or surveyor. • An appropriate warranty or guarantee that will ensure that the treatment programme will be completed in the event of insolvency of the original treatment organisation.5.7.5 Important note: It is impractical to guarantee that Japanese Knotweed will not return following the completion of a treatment programme. Consequently, the mandatory insurance should be restricted to ensuring that the treatment is completed.
The above clauses make it abundantly clear what the surveyor needs in order to conduct a full survey and avoid taking value off of the property. Remember, their goal is to protect the asset of the mortgage company, the framework above allows them to do that whilst keeping value in the home.
5.8 Contractors and consultants5.8.1 As standards develop across the treatment industry, it is likely that lenders will begin to specify that the management plan provider is an accredited member of a recognised trade association. At the time of writing, the Property Care Association (PCA)were finalising the details of such an organisation that should be in place by March 2012.
This document is the current RICS guidance but was written in 2011/12. Accredited and approved Japanese Knotweed specialists are vital for the RICS surveyor.
6.1 The presence and effects of Japanese Knotweed are just one of the many considerations that may affect value, and just one of the variety of factors that valuers and surveyors need to take into account when assessing market value. While this invasive, non-native plant can be difficult to control, it should be recognised that timely and persistent treatment programmes can minimise its impact. As the treatment industry develops and matures, it is hoped that residential practitioners will be able to provide more informed advice to their clients. And as lenders adopt more consistent and balanced policies, Japanese Knotweed should soon become just one more consideration in the complex valuation process.
Clause 6.1 makes it clear to the surveyor that Japanese Knotweed is just one of many items to consider and that its impact can be minimised with the right treatment plans.
Neighbourly complications in the valuation
5.9 Neighbouring properties5.9.1 Where the Japanese Knotweed is confined to the grounds of a single property, its eradication will normally be a straightforward process involving only two parties: the property owner and the contractor. However, where Japanese Knotweed straddles the boundaries of a number of different properties, the solution will not be so simple. Although the owner of the subject property may have paid for a treatment programme, if the owners of the neighbouring properties do not co-operate, the treatment is unlikely to be effective.In some residential areas property ownership can be complex and transient and establishing a joint strategy in this situation will be challenging. In these cases, providing root barriers along the boundary may appear an attractive option to lenders who require a straightforward, time-limited solution. However, this approach may be unsuitable for many domestic properties for two reasons: 1 The disruption of excavations to depths of three metres will be expensive, disruptive and legally challenging, as the owner’s legal advisers take into account matters relating to boundaries, party walls and general property rights. 2 Not all commentators agree that root barriers on their own are effective ways of preventing the spread of Japanese Knotweed (see 4.3.2for further discussion).5.9.2 Consequently, where Japanese Knotweed is present on a neighbouring property or land, two strategies can be adopted: 1 Where the Japanese Knotweed is on both the subject and neighbouring property, the management plan should include:– provision for the treatment of the entire outbreak, regardless of boundary positions; and– a project management service in which the contractor will co-ordinate plans with willing neighbouring owners regarding access for the inspection and treatment regimes. 2 Where a neighbouring owner does not cooperate and prevents the completion of the treatment programme, the new owner of the subject property may have to commit to a continued treatment programme that will restrict the growth of Japanese Knotweed on the subject property until a cross-boundary, co-ordinated treatment programme can be agreed. Conversely, where the neighbouring owner is the lead party in the management plan, the residential practitioner will want to remind the buyer of the subject property that they should cooperate and failure to do so may expose them to legal action for negligence.5.9.3 To protect the legal interests of the subject property owner, his or her legal advisers may wish to put adjacent owners on notice of the problem, indicating what should be done to tackle the Japanese Knotweed and the possible consequences of failing to take appropriate action.
Here the key point is “Where a neighbouring owner does not cooperate and prevents the completion of the treatment programme, the new owner of the subject property may have to commit to a continued treatment programme that will restrict the growth of Japanese Knotweed on the subject property until a cross-boundary, co-ordinated treatment programme can be agreed.”An investor should always put into place their own insurance guaranteed program, paid up for 10 years against the property that cannot be transferred to another property regardless of what actions the neighbours are or are not taking. We need to make sure that we have the provisions and securities in place for the mortgage company and surveyor. Provisions that we control the quality of.
Mortgageability
The majority of mortgage lenders have now set policies relating to lending on knotweed affected property.They generally will require a detailed Japanese Knotweed Management Plan to have been prepared and put into action by a reputable specialist and be backed by suitable insurance backed guarantees before lending can be released and a house sale proceeds.Mortgages are the key to making returns on investment properties is the finance.Can you get almost all of your money out and make a good rental profit against the monthly payments?This is where savvy investors are winning, and winning big, the first movers are taking the tastiest pieces of the pie…The key is providing mortgage lenders what they require, and what they require is a 10 year Japanese Knotweed treatment plan with an insurance backed guarantee by a supplier that is a PCA member.
Mortgage lenders often require evidence of a suitable Japanese Knotweed treatment programme as a condition of lending if the plant is present on or near to a property. Lenders may retain some of the mortgage until the buyer can prove they’ve successfully eradicated the Knotweed. A 10-Year Insurance Backed Guarantee must also be in place upon completion. So this may affect the treatment plan chosen by the seller. Lenders will handle cases of Japanese Knotweed differently according to their particular guidelines. Some individual lenders are willing to consider applications on a case-by-case basis, but you may need to commit to treat the Knotweed or begin initial treatment before getting a mortgage confirmed. Here are the stances of some of the UK’s biggest lenders on Japanese Knotweed mortgages.
Source: https://tpknotweed.com/japanese-knotweed-removal/mortgage/
Barclays
Barclays demands an expert site assessment, and will not offer a mortgage until the Japanese Knotweed has been treated.
Nationwide
Nationwide Building Society says: “If Knotweed is prominent less than seven metres from the house we request a specialist report about eradication before deciding whether we can lend. Even if further away we require written confirmation from the borrower they are happy to proceed with a mortgage application despite presence of the plant.”
Santander
Santander expects professional Knotweed treatment before lending homeowners money. It also expects you to keep money aside for future treatments in order to keep the garden clear.
Insurance and mortgageability:
2.3 Insurance companies2.3.1 Discussions with the Association of BritishInsurers (ABI) and some insurance companies revealed the following: • Insurers do not generally ask any specific questions about Japanese Knotweed when a homeowner applies for a building insurance policy. • Although it is not specifically excluded, most buildings insurance policies do not cover damage and problems caused by Japanese Knotweed. Additionally, because the damage occurs gradually, it is unlikely to be covered in the future. • Where Japanese Knotweed originates from a neighbouring property, insurance companies are likely to pursue others for the costs of the damage caused. • A number of lenders claim that they are unable to obtain insurance cover for property affected by Japanese Knotweed.2.3.2 This can leave a home buyer in a difficult situation where their preferred lender will not grant a mortgage unless the home buyer can secure a building insurance policy that covers damage caused by Japanese Knotweed; but the home buyer cannot get an insurance policy that does.2.3.3 Consequently, lenders and owners may need to tackle the problems posed by JapaneseKnotweed without the support of building insurance policies.
Insurance is vital and RICS surveyors take it into account. Use a specialist Japanese Knotweed property insurer to cover your property and make sure that the valuer is aware of and has a copy of the policy.
Legal And General’s Surveyor Guidance
Legal and General give a specific data pack to their surveyors which you can download here:
In this pack they as valuers see themselves in the “firing line”
Most home owners and buyers become aware of the presence and potential cost of Japanese Knotweed in negotiating a sale when mortgage valuers raise the issue – that’s why we are in the firing line!
They define Market Value As:
“Market value is the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction and where the parties have each acted knowledgeably, prudently and without compunction”
And go on to say:
Does the presence of Japanese Knotweed really affect value and increase lender risk?
“It doesn’t mean the property is worth less it just means something needs to be done to make sure the value is maintained.” 14/08/2013 Mortgage Solutions
But is there a perception in the buying market that “we” have generated meaning the impact on value is greater than the repair cost?
The presence of Japanese Knotweed introduces additional costs of ownership and increased uncertainty in the minds of buyers and therefore like other items of disrepair or structural damage inevitably impacts Market Value.
And use this example:
A homeowner has claimed she is unable to sell her property
after Japanese knotweed smothered her neighbour’s garden.
Nasreen Akhtar could not understand why no-one wanted to buy their two-bedroom house despite 20 viewings with three separate agents.
It’s clear that this level of infestation next door would make it very difficult to lend against for a mortgage provider.
The above homeowner was unable to get finance on her property or sell it due to the neighbours unwillingness to act.They go on to say:
- The owner could not sell so tried to remortgage
- Mortgage Valuers reported that Japanese Knotweed had overgrown an elderly neighbour’s garden
- Growth had extended into the garden of the subject home and potentially other adjoining property
- The adjoining property was owned by a Housing Association
- The elderly adjoining occupier quoted as saying “…. too much for him to deal with”
- The local authority advised that it is a matter for property owners
- The extent and proximity of the Japanese Knotweed would be unacceptable to mainstream lenders because of the risk to value and saleability
- The house owner is “trapped” as her home is not mortgageable unless they and an unspecified number of neighbours commit to an acceptable remediation programme
And then ask:
- What can a homeowner do in such situations where multiple nearby property owners may be impacted
- Remediation requires a coordinated response involving adjoining owners
- How will such coordination be provided?
- What should be a reasonable timeframe for agreement and implementation?
- Who pays? Not all owners will have the required resources
- Who cares? – we cannot assume all owners will
- Does legislation provide any practical assistance – the Wildlife and Countryside Act 1981 only made it an offence to ‘plant or otherwise cause Japanese Knotweed to grow in the wild’ (Not Scotland)
- Agreed solutions must be acceptable to a wide range of mortgage finance providers
- What should be the role of the existing mortgage lender? Do they even know they have a problem with their mortgage security/asset value?
And then ask:
Would you buy that house? At what price?
“Since the mid-1970s the problems of building movement, high alumina cement, asbestos, prefabricated concrete buildings, lead, radon, and electromagnetic fields have presented assessment difficulties that have been largely resolved and assimilated into the lending process. There is no reason why the assessment of Japanese Knotweed cannot follow a similar route.” RICS IP 27/2012
Conclusion On Japanese Knotweed
In conclusion it is clear that the RICS valuer will note that an area has Japanese Knotweed before visiting and mark every property in the area down in part because of it. It is also clear that Legal And General Surveyors have very similar RICS led guidance.However, it is also clear that the RICS surveyor can and should not mark the valuation down too much because of it.At the start of this article I quoted an article from The Independent that showed a 10% drop in prices for properties with Japanese Knotweed.We work around 20% and you can buy them for 50% BMV.Choose carefully, a house with a few sprigs in the garden or some within 7m will be vastly undervalued. Add a management and prevention programme into your cost calculations and present it and your insurance to the valuer with your immaculate, refurbished property that has no visible signs of infestation or damage caused by it and the guidance is clear, the property has value.Do you see the gap and the opportunity?I do, 30% in a competitive market is not to be sniffed at.If you agree or disagree comment below and tell me what you think
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