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An Introduction to Building Warranty Standards in the UK

The property market in the UK is one of the fastest growing, rapidly changing markets in the world. Keeping up with market standards can be very hard, and if certain requirements are not met, you could end up paying enormous amounts of money repairing mistakes.

One such area that has seen significant changes in the past couple of years is the building warranty requirements needed to secure finance against a new building or major refurbishment/conversion. 

If you don’t get it right, then you might be stuck with a huge bill when it comes to trying to refinance your home or come to sell your property. 

That’s why the team here at Buildsafe have written a quick, easy-to-read introductory guide to building warranties which you will find below. Please feel free to visit our website (www.buildsafe.co.uk) to learn more about new market standards and get in touch with our team if you require further advice or are looking to secure a building warranty for your development.

An Introduction to Building Warranties

A building warranty (also known as latent defect insurance or a structural warranty) is a policy that insures the structure of a building against negligence throughout the design & build process.

It ensures that any new build, conversion or refurbishment of a property is built to a certain standard and protects the end user and mortgage lends generally for a period of 10 years against the possibility of structural issues and in some cases water penetration.

There are varying policies available for new builds, self-builds, completed/retrospective properties, properties in receivership, mixed use and commercial properties.

Why is this required?

The reason for this requirement is firstly to protect the end user of the property against unscrupulous building practices and secondly (perhaps more importantly from the perspective of the Council of Mortgage Lenders) is to protect the lender who has taken security over an asset in the provision of a mortgage. Of course when funds are lent against a property the lender must ensure that the property is structurally sound.

Unfortunately, building warranties are often viewed as a necessary evil by developers, builders and self-builders who are often the parties who must commission them.

However, all stakeholders throughout the construction process must consider their importance in the current regulatory environment.

Many development finance lenders recognise the importance of building warranties for two main reasons; firstly to ensure the quality of the build over which they are taking a charge and secondly to ensure the strength of an exit strategy.

Most high-street banks and retail lenders will not provide a mortgage on a property that has been built within the last 10 years and does not have a warranty. Consider the impact this can have on a 10 unit residential development being sold to the retail market without warranties in place: if eight of the 10 buyers are requiring finance for their purchase, then the sale of the entire development is unlikely to proceed until a warranty is in place. As retrospective warranties can cost as much as five times the price of warranties in place prior to construction, the buyer is most certainly not going to be satisfied having to put the plan in place themselves.

So although the developer or builder may not be the end user of a warranty, they ultimately benefit from having one in place as sale of the property is faster and less complicated which means they also enjoy quicker repayment of gearing.

To learn more about the market requirements visit www.buildsafe.co.uk

Self-build

If you are building a home to live in (self-build) you will still need a building warranty if circumstances change and you have to sell or refinance your home within 10 years. You will not be able to do so without a warranty in place as all high-street banks and building societies in the UK now require on to be in place before they agree to lend.

Legal Precedent

Until now many small-scale and regional developers and builders have relied upon consultants certificates to meet the Council of Mortgage Lenders’ criteria. A recent court of appeals case - “Hunt and others v Optima (Cambridge) Ltd and others [2014]” - confirmed that an Architect’s certificate is not the same as a building warranty as the former requires proof of negligence in order for recourse. As this is often very hard to prove, building warranties provide much stronger legal protection and have become standard practice in the market.

Providers

There are six providers of building warranties in the UK that are approved by the Council of Mortgage Lenders. Each provider has differing policies, criteria and pricing depending on the specifics of each particular development project. Determining which provider and policy is right for each project and getting the best price on your warranty can be a logistical nightmare, and of course, if asked, each provider will sing their own praises! It is therefore always beneficial and more cost effective to seek independent advice and whole-of-market quotes from the experts at Buildsafe.

The Buildsafe team

We are an independent organisation offering whole-of-market quotes for the UK structural warranty market. We also help clients who are looking for development finance and bridging facilities.

Our team has in excess of 20 years’ experience in the UK property sector, including development, asset management and insurance.

Our ethos is based on outstanding customer service. Obtaining a structural warranty can be an arduous process with lots of form filling, additional questions from insurers, and time spent chasing an actual quote. We take away that pain by managing the process for you and ensuring you receive the best price for the most appropriate cover to meet your requirements.

If you would like more information or to talk to us about your building warranty needs, please call us on:

0203 701 0422

info@buldsafe.co.uk

www.buildsafe.co.uk