Protection for New Home Buyers

Jim Shannon Excerpts

Thursday 16th January 2020 Commons Chamber

[Kate Green]

I absolutely agree with my hon. Friend, who does excellent work through the all-party parliamentary group on leasehold and commonhold reform. I will be saying a little more about the deficiencies of the warranty arrangements, including those provided by Premier, in a few moments.

[Jim Shannon (Strangford) (DUP)]

The National House Building Council in Northern Ireland gives some guarantees to people who buy houses, although it may not always be able to have the enforcement powers that it would like to. Does the hon. Lady agree that there is also a responsibility on banks to intervene and help when it comes to mortgage repayments on a house that is not finished correctly?

[Kate Green]

I will say a little about mortgage lenders later in my speech.

The examples I have given the House are not isolated. Indeed, Mr Alexander is notorious for a number of poor-quality developments across Greater Manchester and beyond. But it appears that developers can continue to develop new properties that fail to meet buildings standards, sometimes to a dangerous degree, while avoiding taking any action to address defects in their previous developments. Local authorities lack resources for inspection and enforcement. They cannot take developers’ previous failures into account to refuse them planning permission for future applications. Unscrupulous developers are free to continue to build with impunity, while buyers are left without redress.

How can it be right that such poor-quality buildings can be constructed, sold and occupied? How on earth are they receiving building regulations certificates? Section 57(1) of the Building Act 1984 means that it is an offence “recklessly” to issue such certificates, but it seems that they are being issued for clearly substandard buildings. I wonder whether the Minister can tell the House how many successful convictions have been brought under this legislation, because I have not been able to identify a single example.

Faced with defects and developers’ refusals to rectify them, buyers may seek to rely on their buildings warranty cover, as my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) mentioned. But as my constituents have found, all too often that does not offer the protection they expect. Warranty providers are able to carry out a dual role as both approved inspector and warranty provider. That surely creates a conflict of interest. Insurers have an incentive to suppress knowledge of defects, particularly when they may give rise to very large claims. Exclusions to the cover often leave significant risk with the homeowner, so the inspector may not even bother to inspect every property in a development—arguably, there is insufficient incentive to do so.

Perhaps, therefore, we should not be surprised to hear from my hon. Friend about his constituents’ experiences with Premier Guarantee or that the main warranty provider in the UK, NHBC, told the all-party group in 2015 that of all the homeowners it covers, fewer than 5% contact NHBC with issues that result in a valid claim under the warranty. That does not of course tell us how many buyers try to claim under their warranty but are unsuccessful. It conceals the fact that warranty providers are extremely reluctant to rectify defects, as the onus will fall on them to recover the cost of doing so from the developer. Although defects the builder has failed or refused to deal with can be referred to NHBC’s resolution service, by which it decides which claims to accept or reject, New Build Guru suggests that house builders and NHBC routinely liaise directly with each other without notice or reference to the policyholder, and privately decide between them which claims will be accepted, thus avoiding both cost for the developer and the need for NHBC to incur expense to recover its costs from the builder.

For all practical purposes, a homeowner cannot challenge the warranty provider if it refuses to accept their claim. The reason for this, as one of my constituents has recently discovered, is that the resolution service is not a regulated insurance activity. If NHBC rejects a claim and the homebuyer wishes to challenge the refusal, the Financial Ombudsman Service has no jurisdiction to deal with such complaints. Homeowners may be able to complain to the Construction Industry Council, which regulates approved inspectors, but failing that their only option—mostly costly and impractical—is to go to law.