New homes warranty firm questioned after paying millions to housebuilders

The NHBC has come under fire for its new homes warranty after it emerged it is paying developers up to £15m a year

The credibility of new homes warranties have been called into question after it was revealed the National House Building Council (NHBC) is paying developers millions of pounds a year.

The NHBC provides warranties for most of the new homes built in Britain. However, The Guardian revealed the organisation is paying millions of pounds each year to leading housebuilders.

According to the reports, the NHBC is paying between £10m and £15m to housebuilders in what has been described as a profit-share. The scheme can give some of the larger firms as much as £2m because it rewards developers who register the most homes with NHBC.

No protection for consumers

Critics said the payment was a way of ensuring developers remained NHBC customers and revealed a lack of protection for new home buyers.

NHBC has an 80 per cent share in the warranties market, and the NHBC warranty is supposed guarantee new homes for the first 10 years after development. Over the past few months there has been an increasing number of complaints over issues with new homes, with homeowners raising concerns about the lack of protection from their warranties.

NHBC is too ‘cosy’ with housebuilders

Paula Higgins, co-founder and chief executive of the campaign group HomeOwners Alliance, said: “As we have more houses being built and the government encouraging people to buy new homes, we are seeing more and more issues with quality.

“The government is more concerned with numbers than homes for the future and there is a real danger that we are building the wrong sort of home.”

Higgins warned the size of the market share of the NHBC was creating “too much of a monopoly” in the warranties market. Furthermore she said the relationship between the NHBC and housebuilders was too “cosy”.

“I think NHBC is acting on behalf of the developers and its members. I don’t think they are acting on behalf of consumers,” she added.

Ombudsman needed

Conservative MP Oliver Colvile chairs the all-party parliamentary group on new build properties. He said he had concerns about the independence of the NHBC and called for an ombudsman to be introduced.

“I think what needs to happen is that the government needs to look at this seriously. This is a consumer rights issue,” he said.

“Let’s put the consumer on top of the list. I want to see action on this issue.”

Premium refund

The payment, which is referred to as a “premium refund” in the NHBC’s financials, was investigated by The Guardian, who found the amount received is based on a calculation that includes the number of homes registered by the developer 15 years ago, the cost of claims paid out on these homes, and the investment return earned by the developer. This period of time means the warranty has elapsed, and the property has been built and sold.

Market-leading warranty

In response, the NHBC said: “NHBC provides a market-leading warranty, which currently protects 1.6 million UK consumers.

“Last year we paid £90m in respect of claims in addition to providing assistance to homeowners through our resolution service, which mediates between homeowners and their builder and last year found in favour of homeowners in 70 per cent of cases.

“As is standard practice, we do not discuss our commercial transactions or our underwriting terms.

“It is common practice in the insurance industry to recognise good claims history in a number of ways such as no-claim bonuses, and this is what our premium refund system, established in the 1990s and disclosed in our accounts, is designed to achieve.

“The system is consistently applied and is based on clear rules and processes. As this refund recognises long-term good claims history, the rules state that builders do not need to be current NHBC customers to receive it.

“The sum paid in refunds is a very small proportion of NHBC’s annual turnover.”