Do you want to invest in a new property?
Some property investors choose to invest in new properties because they believe that there is less likelihood of major problems and also because they are covered with a new build warranty.
The concept makes sense – you never know what you might find with an older property in terms of structural damage or other disasters that are very expensive to fix. And you will also have a warranty for up to ten years on the new property.
But as you can imagine it is not as straightforward as that.
New properties can and do experience serious issues. If this happens then you will expect the building developer to cover repairs under the terms of the new build warranty right?
Well in most cases this would happen but there is always a possibility that some small print in the warranty will provide an escape clause for the developer. You have to read everything carefully and make sure that you understand it all.
Look in general it is a good idea to invest in a new or nearly new property. Everything is done and you can move tenants in immediately if this is your plan. There are no renovation costs to consider to eat into your profits.
I am not trying to put you off from investing in a new property. I just want you to be aware that there could be some pitfalls.
So what are New Build Warranties?
The easiest way to understand a new build warranty is to think of it as an insurance policy for a new property. The property developer or builder takes out this insurance to protect the buyer of the property.
It is usual for a new build warranty to cover the property for 10 years. So if you invest in a nearly new property you will have cover for the remainder of this term. In the UK there are several new build warranty providers. The four main providers cover 95% of the market and they are:
All of these providers of new build warranties are members of the Consumer Code for Home Builders (CCHB) and operate under their rules. You will find that the NHBC warranty is the most common as they cover 80% of the new properties built in the UK.
In some cases you might come across a new build warranty from a provider that operates under different rules than the Consumer Code for Home Builders. There is a Consumer Code for New Homes (CCNH) and BLP Insurance provides warranties under this code for example.
There are some small differences between these codes. Under the CCNH code when a builder purchases a warranty they do not need to pay a membership fee as they do under the CCHB code. A builder can obtain a warranty for a property that is over a year old with BLP but this is not possible with the providers under CCHB.
With a BLP warranty they will cover any defects from the first day while the providers under CCHB will demand that the builder or developer fix any defects that occur in the first 2 years. The insurers only get involved if there is a dispute. It is interesting that the Federation of Master Builders provide their warranties under the CCNH code.
Main Areas Covered by New Build Warranties
No matter what kind of new build warranty covers the property, there should be cover against any significant structural defects. Although the different warranties differ in some ways, they should always include:
- A 2 year builder or developer warranty for defects
- Structural insurance for another 8 years
- Cover for contaminated land
- In the event of a builder or developer becoming insolvent you will have deposit protection
I cannot emphasise enough that most warranties will include these things but you must check for yourself. It is certainly possible that a warranty may not cover everything above so you must do your homework.
What you should expect is that a new build warranty will have 2 distinct periods – these are the first 2 years which is the most likely time for any significant issues to arise and the remaining 8 years which is essentially insurance cover for the structure of the property.
In the first period the warranty will cover things like heating system problems, ill fitting windows letting in rain water and so on. Usually the developer or builder will take the responsibility to fix any problems in the first 2 years.
For the second 8 year period, the insurance cover is only concerned with major structural issues such as the foundations, the roof, load bearing walls, external render, chimneys, ceilings and so on.
If there are any smaller issues after the initial 2 year period then they are the property owner’s responsibility. This will usually include problems with any fixtures and fittings as well as guttering. You need to be aware of when the initial 2 year period expires so that you can get everything fixed within that time.
Common Problems with New Properties
Some people believe that if they invest in a new property it should be perfect. This may not be the case, and there have been several examples of new properties experiencing problems from condensation and drying out (these are the most common).
In a small number of cases there have been defects to new properties due to the builder or developer not completing work to the appropriate standards. These do not come up all that often but they are a possibility.
You need to understand that a new house is a complex structure built by humans outdoors. This makes it susceptible to a number of potential issues such as the type of soil the property is built on. As a new property settles there is likely to be minor movement which is a natural thing.
It is rare that there are structural defects with a new property but again this can happen. If you are unlucky enough to experience a structural defect in a new property then your new build warranty should protect you against this for 10 years.
What you will not have cover for with a New Build Warranty
You cannot expect a new build warranty to cover you for wear and tear. The warranty will not provide cover if you fail to maintain the property adequately either. An example of this could be weather damage.
If your new property suffers from condensation or damp then your new build warranty could cover you if there is proof that this happened because the builder or developer did not comply with the appropriate standard.
Be sure to read the small print of your new build warranty. An insurance company is behind it and they like using small print as a way to protect themselves from paying out for repairs if they can avoid it.
Some new build warranties have an excess which is the case for those provided by Premier Guarantee and LABC. At the time of writing this post the excess was £1,000 so you will have to cover this amount first with every claim that you make on the warranty.
What do you do if you Identify a Defect?
You will need to contact the builder or developer immediately. It is always wise to maintain records of all communications including the date and the time of any calls that you make. This will help you if there is any reluctance on the part of the builder or developer to fix the defect.
If you are investing in a brand new build then you might want to consider a snagging survey. Here an independent snagging company will check the property immediately after the build and will produce a snagging list that you can share with the builder and ask them to remedy.