Competition watchdog to examine warranties for new homes
CMA’s review of NHBC comes amid concerns over lack of protection for homebuyers.
The Competition and Markets Authority is examining payments between housebuilders and the providers of warranties for new homes as part of a review of NHBC, the largest warranty provider.
The CMA announced last month it was reviewing undertakings made by NHBC, the standard-setting body for new-build properties in the UK and the main warranty provider. These 22-year-old undertakings were designed to improve competition in the warranty market.
The review was announced amid concerns that NHBC is compromising its independence by paying millions of pounds to developers every year. However, the CMA said it was launching the review following a request from NHBC and that it would not consider the “wider issues” relating to the organisation.
Nonetheless, the CMA has sent a substantial list of questions about warranties to leading figures in the sector as part of its review. The questions, which have been seen by the Guardian, include asking warranty providers whether they have loyalty or low-claim schemes that compensate builders with a low claim rate and how these payments are calculated.
The Guardian revealed this year that NHBC is paying around £10m to £15m every year to housebuilders through what is effectively a profit-share agreement. Campaigners said these payments called into question NHBC’s independence from housebuilders. In response, NHBC said the payments were a “very small” proportion of its annual turnover and that it was common practice in the insurance industry to recognise good claims history. NHBC said the payments, which it describes as premium refunds, totalled £4.5m last year.
NHBC, which claims to have an 80% share of the new-build market, sets quality standards for new homes and provides 10-year warranties to buyers. The warranty is a form of insurance that is supposed to compensate the consumer or fix faults in the new property if there are problems within the first 10 years.
However, there has been growing criticism of the quality of new homes in Britain and the lack of protection for consumers. Bovis, one of the UK’s largest housebuilders, was forced to pay out £7m to compensate customers who bought poorly built new homes, while Clarion Housing Group, the country’s largest housing association, has agreed to buy back properties in a London development.
A survey published by the House Builders Federation revealed that 98% of customers have reported snags or defects with their home since moving in a year ago, up from 93% last year.
Philip Waller, a retired construction manager who runs the campaign website brand-newhomes.co.uk, said:
“The NHBC ‘premium rebates’ to plc housebuilders and the minimum claim value [for new home buyers], which is currently £1,550, are two areas I believe that require examination and investigation.
“I also feel that the historic claims data collected by the NHBC relating to specific individual housebuilders should be made publicly available enabling consumers to make a better-informed buying decision.”
The undertakings made by NHBC were that it allowed housebuilders on its register to use other warranty providers and that it did not make changes to its rules that could hurt competition without approval from competition authorities. These are now being reviewed.
The CMA declined to comment about the questions sent as part of the review.
The NHBC said:
“There have been significant changes in the new home structural warranty market over the last 20 years and NHBC’s view is that its undertakings are now obsolete. So, when approached by the CMA, we welcomed the opportunity to work with them and we asked for the undertakings to be reviewed and released. This reflects our commitment to maintaining an open and competitive market for new home structural warranties.
“The CMA’s review will look at how the market for new home structural warranties currently operates to protect homebuyers in order to see if there has been a change in circumstances which would justify the removal or variation of the undertakings. The CMA has expressly stated that it will not be considering wider issues relating to NHBC as part of this review.”
Andy Butchers, Director at Build-Zone Survey Services, said:
“Ultimately the warranty provider can look at the build and ensure that it is built to suitable standard. Housebuilders are often trying to build homes as cheaply and quickly as possible and so quality issues get overlooked.
It is about how you can control the quality. The Code of Conduct which warranty providers can now follow, after certain measures have been put in place, will ensure the homebuyers are not buying off a rogue housebuilder. However, without one centralised Code which all warranty providers sign up to, “blacklisted” homebuilders are able to approach other warranty providers that will probably provide them with cover.”