The organisation that provides warranties for most of the new homes in Britain is paying millions of pounds to the leading housebuilders every year, raising questions about its independence and credibility amid a wave of complaints about the quality of new-build properties.
NHBC, the standard-setting body and main home construction warranty provider for new builds in the UK, is paying around £10m to £15m every year to housebuilders through what is effectively a profit-share agreement. The largest firms can receive as much as £2m from the scheme, because it rewards the developers who registered the most homes with NHBC.
Campaigners said the revelation shows that NHBC is on the side of developers rather than consumers and that the lack of protection for buyers of new homes is a “scandal”.
A senior industry source said the annual payment to the housebuilders was a way to keep them “sweet” and ensure they remained NHBC customers. The source also said that the system is open to abuse, and there were at least two occasions since 2010 when a major housebuilder asked for an extra or increased payment which was approved by NHBC.
The questions about the credibility of NHBC, which claims to have an 80% share of the warranties market, will also be a headache for the government, which is poised to launch its housing white paper this week.
There have been an increasing number of complaints about problems with new homes and the lack of protection and compensation for consumers from NHBC’s warranties. Last month it was revealed that Bovis had paid the purchasers of new homes to move in early only for the buyers to find the property unfinished.
The NHBC warranty is a form of insurance that is supposed to compensate home buyers or fix any faults in the new property if there are problems within the first 10 years.
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 said NHBC was “too much of a monopoly” in the warranties market and described its relationship with housebuilders as “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,” said Higgins. “The quality of new homes – it is a scandal.”
The potential conflict of interest between NHBC paying compensation to consumers and returning cash to housebuilders will lead to more calls for the government to introduce an independent ombudsman to oversee complaints about new homes or for the Competition and Markets Authority to investigate NHBC’s dominance of the market.
Oliver Colvile, the Conservative MP who chair an all-party parliamentary group on new-build properties, said he had great concern about the independence of NHBC. He called for an ombudsman to be introduced and for homebuyers to be allowed to inspect their new home before they purchase it.
“I think what needs to happen is that the government needs to look at this seriously. This is a consumer rights issue,” he said. “Lets put the consumer on top of the list. I want to see action on this issue.”
NHBC has faced questions about its independence before because it is paid a membership fee by housebuilders, meaning they effectively fund it. However, this is the first time it has been revealed that NHBC pays millions back to developers.
The payment is referred to as a “premium refund” in the financial accounts of NHBC. However, it is only mentioned in the notes to the accounts and the amount paid out is not disclosed.
A letter seen by the Guardian from NHBC to a housebuilder shows the payment is based on a complex calculation that takes into account 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 NHBC. The 15-year period allows time for the property to be built, sold and the warranty to expire. However, on top of this formula, each year the NHBC also determines the size of the total pot of cash that is available to be shared out with the housebuilders.
NHBC defended the payments but refused to confirm how much it had paid out to housebuilders or comment on the extra payments to the two housebuilders.
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% 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.”
