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Insight & Opinion

What is an NHBC warranty and how does it benefit property investors?

Author: Staff





Investors making a major commitment to property will be looking for as much reassurance as possible to maximise potential returns.

A warranty from the National House Building Council (NHBC) provides welcome guarantees for buyers and also helps to maintain standards in the property market as a whole.

What is an NHBC warranty?

NHBC is the UK’s primary provider of warranty and insurance for new homes. It sets standards for registered builders and works to maintain and improve construction quality across the industry, ultimately for the benefit of property buyers and owners.

One of the ways NHBC offers protection for buyers is through its range of warranty and insurance options, which currently cover more than 1.5 million homes.

The main warranty and insurance product, Buildmark, covers properties from before they are built and protects the buyer from the initial exchange of contracts to the end of the tenth year following legal completion by the first owner.

In the pre-completion stage, Buildmark insures against deposit losses as a result of the developer not being able to complete building work because of insolvency or fraud. This covers deposits up to 10 per cent of the original purchase price or £100,000, whichever is lower.

The first two years after legal completion is the builder warranty period, in which the builder agrees to fix any problems that are not caused by general wear and tear or maintenance issues.

In the event that the builder fails to do this, NHBC provides an independent resolution service and guarantee.

Following the builder warranty, Buildmark provides a further eight years of insurance up to a maximum of ten years after the completion date. This includes insurance against damage resulting from the builder’s failure to meet NHBC requirements, and cover for contaminated land in the event that the owner receives a statutory notice because of the condition of the land.

Some policies also include additional insurance for failures in compliance with building regulations.

Opto Student and Imperial Square offer an NHBC Warranty

Benefits for investors

Buyers who invest in a development covered by a ten-year NHBC Buildmark warranty – such as Opto Student Newcastle and Imperial Square, Luton – will benefit from the guarantee that the property meets certain quality standards and is covered even after the initial builder warranty period has expired.

From year three to year ten after legal completion, NHBC typically continues to provide insurance for parts of the property including the walls, ceilings, stairs, roofs, glazing, access and foundations.

In cases where problems arise because the builder failed to meet certain standards – as opposed to other causes such as general wear and tear, extreme weather conditions or inadequate maintenance – Buildmark covers the cost of any remedial work needed.

This is an important provision for investors, because it reduces the risk of repair costs eating into profits.

Furthermore, properties protected by an NHBC warranty could be much more attractive to tenants who want to know that their home was built to the required standard and is unlikely to have any major problems in the near future.

This helps to fuel demand and keep occupancy levels high, which supports consistent rental yields for owners.

Benefits for tenants and the property market

No-one wants to move into a new home worrying about the risks of structural instability, leaky roofs, unsafe staircases or other issues that could be costly and time-consuming to fix.

For tenants, the knowledge that the property was built to meet high quality criteria and is covered by a ten-year NHBC warranty provides valuable peace of mind.

As well as providing advantages for individual occupants, the Buildmark scheme helps to maintain standards across the property market as a whole. The UK is in desperate need of new housing at the moment, but developers and organisations such as NHBC must ensure the property coming onto the market is of a certain quality and built to last for decades to come.

In the case of new projects such as Imperial Square in Luton and Opto Student Newcastle, investors can combine the reassurance of ten-year insurance cover with other unique benefits and onsite features.

Imperial Square is an off-plan development currently providing a ten per cent early investor discount, along with the prospect of six per cent net annual rental return.

The property’s location in the London commuter hotspot of Luton, as well as desirable facilities including a club lounge and cinema room, means it is likely to see strong demand from tenants.

Opto Student Newcastle, meanwhile, offers eight per cent net rental returns assured for five years, giving investors the perfect route into the UK’s highly lucrative student accommodation market.

Demand is strong in Newcastle, where the student population is expanding at a quicker rate than the supply of dedicated housing for this demographic.

Combined with a ten-year NHBC warranty, these factors make Imperial Square and Opto Student Newcastle highly attractive prospects for investors looking for opportunities in the UK.

If you would like to know more about investing in a property in the UK that has a NHBC warranty, contact Experience Invest today for more information.

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