Builders Warranty Insurance: A Guide
Whether you’re building your dream home or working on a larger development, you need to ensure that your property is protected in the event of unexpected defects in years to come. This is where Builders Warranty Insurance comes in.
What is a Builders Warranty?
A Builders Warranty is a first party insurance policy that can cover a range of development types, including conversions, new-build properties and commercial developments. It is often taken out by the property developer or housebuilder and automatically transfers to future owners of the property.
At its most fundamental level, it provides protection against unexpected defects that affect the structural integrity of a build. For this reason, it is also sometimes known as Latent Defects Insurance. It is usually put in place for a period of 10 years, although 12 years can be offered for certain development types. This is most commonly the case for social housing as it is a requirement of the Housing Association.
A structural warranty therefore assures any future buyer that construction has taken place according to standards set by the warranty provider and building control body, minimising the likelihood of any defects.
What is included in a Builders Warranty?
In general, a Builders Warranty on new residential homes is split into two periods.
The first is the defects insurance period, which typically lasts for two years. The second is the structural insurance period, which covers the property from year 3 to year 10 or 12, depending on the policy duration.
During the first period, the warranty sets out that the developer and/or builder is responsible for fixing any issues that may arise, which could include structural defects as well as snags, such as missing door hinges. This does not include household appliances or damage as a result of negligence by the owner or others, which will need to be repaired by the homeowner.
The second period is known as the structural insurance period. During this time, the insurer is responsible for the cost of correcting any issues. This usually includes defects to:
- Floors and screeds
- Flues and chimneys
At this stage, the warranty provider’s insurer will step in and cover the cost of any major repairs. Snags and non-structural faults that are found by the homeowner are now their responsibility.
You can also find policies that include cover for:
- Contaminated land
- Temporary accommodation required by the homeowners
- The cost of the removal of debris from the site
- Non-compliance with Building Regulations
Why should I buy a Builders Warranty?
Having a Builders Warranty in place gives you peace of mind that you will be protected if major structural defects are uncovered in the years after a build has been completed.
Correcting major structural faults can be extremely expensive and time consuming, which could affect other projects you may be working on.
Having Builders Warranty Insurance also makes your property more attractive to buyers because they will not have to pay for structural repairs during the term of the warranty.
In most cases, it is also required by mortgage lenders. Potential buyers may not be able to get a mortgage to purchase your property if you do not have one and you may not be given the funds to build it in the first place. This is why it is important to purchase policies that are mortgage-lender approved.
How does a Builders Warranty work?
A Builders Warranty can be purchased at any point, depending on the provider, and can even be bought retrospectively. However, it is typically purchased at an early stage of the build, or even before it has begun.
Inspectors from your provider will then check your plans and schedule further inspections at crucial points of the build. For instance, during the laying of the foundations, the building of the structure, the fitting of the roof and before plastering.
Once the property is complete and has been signed off, your warranty will become active. For the first two years after completion, your builder will service the repairs that are needed, including snags. From year 3, your warranty provider will cover the cost of structural repairs, such as replacing the roof. This reassures your buyer that the cost of these types of necessary repairs will not fall on them.
What is the difference between a Builders Warranty and an Architect Certificate?
An Architect or Professional Consultants Certificate will state that a build has been supervised and built in line with building regulations. Terms can vary but are usually for around 6 years. They tend to be less expensive than Builders Warranty Insurance.
If you or the buyer claim against this certificate, it is likely that you will have to prove that the architect or another professional was negligent, which can be difficult.
Does a builder have to offer a warranty?
It is not a legal requirement to provide buyers with a Builders Warranty. However, not having one will make your property significantly less attractive to buyers and it may make it difficult to secure a mortgage for its purchase.
Not having a warranty also puts you in a potentially vulnerable position. This is because buyers could come to you many years after the purchase with structural issues that you may be liable to fix.
Do owner builders need Builders Warranty Insurance?
If you are undertaking a self-build and intend to live in your property for many years afterwards, you may question getting a warranty.
However, as many mortgage lenders now require a warranty to be in place, you may find it difficult to secure funding against it in the future. And if you do decide to sell, your potential buyers may be put off. If they aren’t, they too may struggle to secure funding to buy it.
How much is Builders Warranty Insurance?
The cost of a warranty is dependent on several factors.
For example, the size and complexity of your development or build will have an influence on the price. Larger, more complex projects will be more expensive.
Cost will also be affected by your credit rating and financial security, your past claims history and any developer ratings that you have been given by previous warranty providers.
Speak to us today about your property development
We hope that this guide has given you a good foundation in Builders Warranties. To get a quote or to learn more about the warranties we offer, feel free to get in touch with the One Guarantee team.