New build completions have hit a 10 year high, with 217,350 new homes built in the 2016/17 financial year. Many buying their first home are attracted by the appeal of the new build – shiny and new, often accompanied by government subsidies available for buyers. But in the rush to build following the Government’s promise to build 1 million new homes by 2020, there are concerns that the quality of new build developments is falling. In this article I outline the protection provided for new build owners and explain how owners can protect themselves in the areas where insurance falls short.
80% of new builds are covered by the National House Building Council (NHBC), the UK’s largest provider of new home warranties. Buildmark, the new build warranty starts from exchange of contracts and typically lasts 10 years after legal completion.
Should your new home require repairs, the process to follow depends on how far into the warranty the property is.
In the period before completion, Buildmark protects the deposit. The insurance covers £10,000 or 10% of the purchase price (whichever is the greater), should the builder become insolvent and the buyer lose their deposit.
For repairs during years 0-2 following completion, the first port of call is the builder. Under Buildmark, the builder is responsible for repairing defects resulting from their own failure in the building process. They are also responsible for the removal of contaminated land and paying for reasonable storage and accommodation costs if necessary. The homeowner should report the issue directly to the builder and arrange repairs with them. If the builder is informed of an issue during this period, he is obliged to remedy it even after the two year period has passed. If the builder fails to complete the repairs, the homeowner should use the free resolution service provided by NHBC. This aims to resolve any disputes between the builder and homeowner, but can also involve the NHBC arranging remedial work required to fix the repair if the builder fails to act, or has become insolvent.
Years 3 to 10 of Buildmark are then covered by NHBC. The insurance during this period is designed to protect the property from damage caused where the property has not been built to NHBC requirements – subject to the limitations below.
What defects are covered?
There is a common disparity between what homeowners expect to be covered by NHBC warranty and what actually is covered, particularly during years 3 to 10 of warranty.
During the builder’s warranty period in years 0-2, the builder is responsible for repairing a wide range of defects caused by the building process. Commonly referred to as “snagging”, this includes minor cosmetic defects, such as paintwork, but not shrinkage or condensation due to the property ‘drying out’, general wear and tear, or any damage arising from the homeowner’s failure to maintain the property.
The level of cover diminishes from year 3 to major defects only. “Major defects” has a precise, and quite limited, meaning under these policies. In short, this cover has a structural focus, such as foundations, load bearing walls, ceilings and roofs, and retains contaminated land cover. Amongst the exclusions listed by NHBC are cracking or mortar erosion not impairing the structural stability or protection from the weather, wear and tear, damage to roof covering unless water enters the property, and changes in colour and texture of external finishes. Many items previously covered no longer apply, including gutters, central heating, internal plaster finishes, fixtures and fittings. NHBC also refuses to cover for any claim that is insured elsewhere, such as storm damage covered by buildings insurance.
Homeowners are often unaware that the cover from year 3 is subject to a minimum claim value, currently set at £1,700. If the cost of the claim exceeds this amount, NHBC are obliged to complete the work or provide the costs in full and no contribution is required from the homeowner. If the cost of the claim does not exceed this amount, NHBC will not complete the work, nor pay costs.
Potential and existing new build owners should consider the following actions to keep themselves protected in the event of property defects:
- Discuss and understand the Buildmark cover with your solicitor
- Check that NHBC has carried out a pre-handover inspection and issued a cover note before completing your purchase
- Consider a full structural survey. This is often seen as unnecessary for new builds, but will highlight any potential structural defects
- Consider other projects the housing developer has been involved in
- Inspect the new build carefully, to ensure it is not damaged before you move in.
- Keep a copy of any correspondence with your builder or the NHBC
- Note the date for expiry of the builder’s warranty period
- Remain aware of the minimum claim value (currently £1,700) during years 3-10
- Read the NHBC’s ‘Guide to your new home’ received from your builder
- Ensure your own insurance documents are up to date as you end the 10 year Buildmark period
- Act promptly in notifying any claim against your builder and/or NHBC, and take advice if either fail to fulfil their obligations.