Peter Richardson of Build-Zone provides insight into structural defects insurance policies – including what they cover, and which features developers should focus on when choosing warranties for new housing developments.
Even with the best care and due diligence, building houses can be complex, and sometimes things go wrong. For developers and housebuilders, the key objective for selling newly built houses is to achieve the best financial return. This is made possible by building and completing high-quality homes that meet the specified requirements, stay within budget, and adhere to the project timeline. Put simply, the housing stock released onto the property market must be premium, finished to a high standard and supported by minimum 10 year structural defects insurance policies.
Structural defects insurance policies are sometimes referred to as inherent or latent defects insurance. They are designed to protect homeowners in new build housing developments from structural defects in design, quality and materials. They provide peace of mind and offer financial protection if there are significant issues with the structural integrity of the properties.
When housebuilders and developers sell newly built houses on the open market, they will require a structural defects insurance policy to comply with a mortgage lender’s requirements. The provider must be approved by UK lenders to sell the property upon completion. Even though a new home warranty isn’t required by law, most mortgage lenders insist this type of cover on the build is mandatory when considering lending to potential homeowners, meaning they won’t provide a mortgage until the developer has acquired inherent latent defects insurance cover.
With the right policy, buyers can be confident knowing the properties are protected against potentially costly inherent latent defects. Most providers will send surveyors and technical auditors to site to assess the structures and building works at crucial points during the construction period. This reduces the risk of things being missed that could lead to the development of latent structural defects. It is, therefore, essential to understand what is covered under any given policy before signing up, as not all policies are equal. This can help find the right structural defects insurance policy to protect a new build housing property portfolio.
Once properties are built, the latent structural defects policy is usually split into two periods:
- Builder Inherent Defects Liability Period: 0-2 years
- During this phase, the builder or developer is responsible for correcting any problems caused by any physical damage or defect from faulty workmanship or materials.
- Structural Defects Insurance Period: Three to 10 years
During the structural defects insurance period, developers are responsible for major structural problems such as load-bearing floors/walls, foundations, the roof structure, ceilings and chimneys.
What is covered under structural defects insurance?
Generally, these insurance policies cover structural defects due to defective design, materials or quality. These can be issues related to poor ground conditions, damage caused by incorrect
or poor-standard construction methods and the cost of correcting or remedying faulty construction.
Features to consider when choosing a structural defects insurance provider for new build housing developments built for residential sale:
- 10 year residential development structural defects insurance policy, backed by financially secure A-rated insurers
- Part of a Consumer Code
- Accepted by the majority of lenders in the UK and an associate of UK Finance
- Fast quotation turnaround
- Quick response from professional, nationwide technical auditing or survey service
- Flexible payment method
- Full risk transfer in years three to 10 of cover
- Cover as standard for alternative accommodation, additional costs, debris removal, and professional fees.
Build to Rent Schemes
Other types of cover include inherent/latent defects policies for Build to Rent Schemes. Many house developers are choosing to expand their offerings into the Build to Rent (BtR) sector, contributing to the increasing number of opportunities emerging in key cities across the UK. BtR involves the creation of residential properties expressly for rent and not for sale to individual homeowners. Structural defects insurance for BtR schemes works slightly differently from new homes built for residential sales as there is no lender requirement or code of conduct.
As this sector grows and evolves, Build to Rent is poised to become a key player in meeting the UK’s housing requirements and defining the future of renting.
Features to consider when choosing a structural defects insurance provider for Build to Rent developments include:
- Long-term ‘A’ rated insurer capacity
- Single structure limits available in excess of £300m
- Cover offered on a Full Value Reinstatement Basis, with no inner financial limits
- 10 or 12 year policy period
- Loss of rent cover
- Each project is individually underwritten and technically appraised, meaning that there is no technical manual to adhere to – giving you greater creativity in the scheme’s design
- An in-house technical team and independent auditors will provide input and advice from the design stage to practical completion.
Structural defects insurance policies provide security and protection against structural defects and enhance a developer’s reputation by demonstrating a commitment to quality and customer care. Housing developers can ensure projects are risk-averse, compliant, and appealing to modern homebuyers and investors, especially when selecting an A-rated specialist structural defects insurance provider.
Peter Richardson is managing director of Build-Zone