Articles
Premier Guarantee "blog"
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New Home Warranties – Price vs Quality vs Consequence
On the 11th of March 2017, The Guardian published a damming article on the lack of quality evident in newly built homes in Britain. The piece was very much centred on the home-buyers experience and the resulting stresses caused by defects and failures within the new property. The blame was predominantly targeted at the housebuilder and a general lack of regulatory intervention from government and local authorities. Use of traditional materials, methods and trades in UK housebuilding were also held up as reasons for the decline in quality vs other European countries, where more advanced technologies are employed. Despite the National House Building Council (NHBC) being mentioned in the context of a potential conflict of interest with builder members, there was little blame aimed at the NHBC's role as guardians of standards and quality or their supposed remit to ensure that houses are built to be fit for purpose and will remain so for at least two mortgage lifetimes (standard CML requirement). Indeed, the building defects insurance sector has much to answer for where quality is concerned, but the developers bears a large proportion of the responsibility because they simply don't give sufficient consideration on which insurer to use. Moreover, they will buy solely on price and neglect to consider the impact that using an inferior insurer will have on the quality of the property as well as the cover afforded to the homeowner. There are two fundamental aspects to any new home warranty. The “policy” ie what's covered and what's not, and the “technical service” or site inspections and quality management. Choosing a product which has the backing of a recognised and “rated” insurer is absolutely critical. This is a 10 year policy that has to protect the homebuyer and future buyers for a decade! It is therefore essential that the insurer remains solvent and able to meet their obligation over this entire period. Does the policy provide full rebuild cover in the event of a complete failure? Are certain key, retained elements in a converted property covered or excluded? And how will the policy respond in the event of water ingress (the most common and severe cause of damage), across the entire life of the policy? Perhaps the most important aspect to ensuring the delivery of a quality home is the insurer's ability to manage potential defects before they happen. The experience, knowledge and diligence of the provider's surveying team can be absolutely invaluable to the developer and even elevate the quality of the build and consequently the reputation of the developer's brand. However, some providers exploit this process as a means to reduce costs. How many inspections will they carry out on site and will there be a reliance on external companies, remote inspections and allowing developers to effectively self-police their work? Many insurers also adopt technical manuals as part of their approach; the better providers will use these guides as platform for dialogue and a pragmatic and flexible regime based on communication with their clients. Others will use as a stick to dictate terms and a mechanism to avoid paying claims. In addition, an aspect of the providers offer which has a growing significance to the protection of the homebuyer is the inclusion and membership of a “Consumer Code” - an industry led initiative that holds developers accountable for treating homebuyers fairly. Surely concern has to be raised as to why an insurer would not provide this additional protection and reassurance to homebuyers? In a highly competitive and increasingly restrictive housing market, where build costs are rising and the availability of land, funding and skilled labour are falling, its easy to buy on price and forget the consequence of that approach. However, by engaging better insurers, who can literally guarantee the quality of a new home, developers can elevate their product, redefine their offer and perhaps, in that process, begin to rewrite a few headlines. Brian Kilroy Foxwood Building Guarantee |
I-Build Magazine
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Brian Kilroy, Business Development Manager at BLP Insurance, welcomes the Government’s funding incentives for self-builders’ construction costs in London, but says that local authorities need to lend a helping hand.
We applaud any initiative that makes it easier for aspiring self-builders to fulfill their ambitions. The recession put many people off making such a large investment of time and money in their home and with many lenders shying away from the self-build market access to funding was hard to come by. However, on its own, a £5 million pledge by the Mayor of London is not enough and more needs to be done by the wider lending community to help fund and drive this critical sector bus also by local authorities, who hold the planning strings, to make sure self-builders get the support they need to contribute to the house-building market. This additional funding should give aspiring self-builders a foot on the ladder and help those who would otherwise struggle to save for a deposit as well as affording construction costs. It is a step in the right direction and if it takes off, we would like to see more funding pledged across the country to allow others access. Lending a helping hand Local authorities now have a duty to step up their game and if they play it right, they can use it as an effective strategy to help hit their housing targets. We’ve seen some movement in the Private Rented Sector, but local authorities also need to recognise private developers and the burgeoning self-build and custom build markets. Self-build has gained more government support in the last year and local authorities have started to get behind the market by relaxing planning rules and regulations to some degree. This is a good start, but we desperately need measures that are more tangible to help us to see more projects coming to fruition. Building your own home is a big project to undertake but the rewards can greatly outweigh the hoops that homeowners need to jump through to make it happen. Self-building provides the opportunity to build the perfect home to suit your lifestyle and put your own stamp on something and help is at hand to guide you through the process. A recent survey carried out amongst 118 UK homeowners conducted by BLP Insurance found that 55% of homeowners would be keen to undertake a self-build project, a 5% increase since 2013. 55% of those homeowners who would consider building their own home blamed lack of available funding as the biggest thing stopping them from getting started. |
Housebuilder and Developer Magazine
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Could the Private Rented Sector be the solution to the country’s housing shortage?
In a recent breakfast seminar on the critical role of councils in build-to-rent development, attendees suggested that buy-in from local authorities is urgently needed to build the quality Private Rented Sector (PRS) properties needed to house the country’s growing population. The seminar, hosted by BLP Insurance and the British Property Federation, stressed that partnering is the key to unlocking the full potential of the Private Rented Sector. Brian Kilroy, BLP Business insurance’s Development Manager, suggested: “The Private Rented Sector is a well assured model, particularly for developers and investors. There are an increasing number of schemes across the country currently in the negotiation phase and a real opportunity to bring more of these to fruition, particularly using institutional money, has to be the way forward.” It was agreed that when the Private Rental Sector is discussed, in terms of policy and strategy, all involved parties need to overcome their differing opinions of how these schemes will look and operate, both in terms of places to live and as vehicles for investment. With housing enjoying significant cross-party support, local authorities, private developers and institutional investors need to work together to meet the political, investor and tenant demand. The seminar agreed that it is essential that councils understand both the motivation and the benefits associated with the Private Rental Sector. It is also crucial that all local authorities are aware of the merits of build-to-rent as a concept. The attractiveness of the revenue model for PRS should not be underestimated. By turning a surplus site into an income stream, which could essentially provide revenue to support services in the local area, there is a longer-term benefit to local authorities. Revenue returns are a far more attractive model than capital release. Against a tidal wave of regeneration, there is also a critical role for PRS in accelerating a sense of place making in large-scale redevelopment projects. However, discussions with local authorities must be evidence based, highlighting the benefits for all parties involved. With over 300 local authorities in England and the differing nature of every single project, there can be no single rule. What is required is a set of minimum standards around management to help drive the asset forward. To support the assets management standards should also include design. This would ensure the building was designed exclusively for private rental and help increase return on investment. It was felt these standards would help remove the stigma created by existing and conventionally designed homes being used for private rental properties and achieve a more level playing field between PRS and owner-occupied units. With the government’s support of new build there is an exciting opportunity to innovate and to use new methods of construction, such as offsite manufacture. These properties are much quicker and cheaper to build, as well as being more energy efficient. Questions about regulation and technical build standards in the PRS need to take into account these design and construction considerations. A careful balance must be struck so that regulation does not stifle or constrain this opportunity for new build innovation. Brian Kilroy concluded: “This is not a discussion that could have taken place 12 months ago. But today, renting is no longer a second rate choice. A quarter of Londoners are already living in private rented properties and this figure is expected to overtake owner-occupied over the next decade. While the cogs are already turning, we need to address the outstanding issues as a collaborative partnership to keep the momentum going and create a credible and successful build-to-rent sector.” |
Housing Management and Maintenance Magazine
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Time to set a standard to incentivise investment in the Private Rented Sector
Brian Kilroy, business development manager at BLP Insurance, calls for a standardisation and consistency from local authorities to oil the wheels of Build-to-Rent and help the sector deliver at scale: “There is no doubt that the Private Rented Sector (PRS) has come on leaps and bounds in the last 12 months, however with the UK continuing to face a chronic shortage of homes it is now more crucial than ever that the sector is incentivised through a more supportive approach to regulations and planning to get developments off the ground and deliver Build-to-Rent at the scale that tenants demand.” “Developers are trying hard to deliver a solution to the wider problem but with an unresponsive and outdated planning process, doing this is not easy. How can we start to do this when the majority of local authorities are not on the same page?” “Local housing authorities could help facilitate the delivery of Build-to-Rent schemes but they need to agree a much more joined up approach to the planning regime to make Build-to-Rent sites more viable. This begs the question as to whether it should be treated as a separate planning class. Flexibility over planning conditions, such as section 106* agreements, as well as facilitating the availability of land would help make Build-to-Rent a more commercially viable way to develop the kind of numbers required to address the housing shortfall.” “Whether this buy-in comes directly from the government or from local planning authorities, a more consistent and sympathetic approach is needed to help generate momentum in the sector. It is easy for planners to be cynical about offering favourable terms to large institutional investors, when their point of view should really be on helping to bridge the gap in the supply of new homes. A perception shift needs to happen if we are to create the credible and successful Build-to-Rent sector that other countries have so successfully achieved.” |
Property Guru
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What makes the perfect office?
It seems that convenience reigns supreme over quirkiness in the battle of the ideal office, with 80 percent of employees believing an onsite cafe will increase productivity at work. A survey carried out by BLP Insurance, a specialist insurance provider, has revealed that for the majority of employees an ideal office would include features that reflect convenience rather than quirkiness, with 80 percent of respondents preferring an onsite cafe over an in-house bar. Another top desired feature was a roof terrace or balcony, according to 60 percent of respondents, followed by a gym (41 percent), themed meeting rooms (25 percent) and a swimming pool (20 percent). The research also showed that workers are most concerned about practicality and convenience desiring amenities that make their lives easier, with 30 percent of respondents choosing a cash machine as an ideal office feature. Quirkier features, on the other hand, such as a 'scream room', games room and sleeping pods surprisingly only received a handful of votes. At the bottom of the list were an onsite doctor, hairdresser, a smoothie bar and an in-house bar. Brian Kilroy, Business Development Manager at BLP Insurance, said: “With the average full-time worker spending more than 40 hours a week at work, employees want an office that provides a practical space with access to key amenities”. There is a growing realisation of the link between employee productivity and the office environment. An overwhelming 97 percent of surveyed employees believe that workplace design has an impact on productivity with over half of respondents strongly agreeing with the statement. Kilroy added: “Businesses are wising up to the impact that office features and facilities for employees has on the productivity and longevity of its workforce. Access to amenities which are convenient for employees and help them to sustain a good work life balance can no longer be ignored, with businesses battling it out for the added extras that their offices can offer. “With the demand for luxury office space on the rise, as employers look to improve the office working environment, developers just can't afford not to protect their investment. The industry is waking up to the benefits of commercial latent defects insurance, both as a way of protecting the investment against the consequence of building failure as well as simply making their offer more attractive to potential commercial tenants.” |
Insurance Age
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BLP survey reveals brokers' increased knowledge of latent defects insurance
Firm says property investors "can't afford" not to buy products in current market. Brokers are becoming more knowledgeable about latent defects products, according to research conducted by BLP Insurance. In a survey of 46 commercial brokers across the UK, the company found that there is an increased awareness of latent defects insurance in the construction industry compared to five years ago. Two thirds of commercial brokers are fully aware of the product, and over half of respondents see its value in protecting homes, offices and mixed use developments against potential failure and subsequent repair of any structural defects, component failure, mechanical and electrical faults. Increased uptake As awareness of latent defects insurance has increased, BLP Insurance claimed it has witnessed a 575% increase in commercial schemes insured over the past year. However, despite the growing awareness of latent defects insurance, nearly 20% of commercial brokers surveyed still have no knowledge of the product. BLP warned that traditional development warranty cover does not have sufficient limits to cover the full cost of development for a growing number of schemes, especially high end residential developments, which leaves properties completely exposed and developers with the risk of costly bills should a building defect arise. Insistence Brian Kilroy, business development at BLP Insurance, commented: “Due to the restrictions for developers when claiming on a traditional warranty, we have seen an increasing trend of banks, investors and funders who now insist on latent defects insurance on all schemes before considering a partnership or any type of development involvement. “In today’s market, they just can’t afford to leave their investment exposed.” Kilroy added: “We are seeing an increasing demand for our commercial latent defects insurance product as the industry wakes up to the benefits of this type of comprehensive cover, both as a way of protecting the investment against the consequence of building failure as well as a way of making their offer more attractive to potential commercial tenants.” |
Housebuilder and Developer Magazine
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Is the housing sector’s recovery a real test of building standards?
More than 226,000* new homes were built at the height of the UK housing market boom in 2007. By 2009, complaints to the National Housebuilding Council (NHBC) concerning alleged defects had reached 64,000 – the highest figure on record. In the push to meet the demands of the house buying public, standards had inevitably paid the price. With the market picking up again and activity growing towards pre-recession levels, the risk that history might repeat itself and build standards start to fall is a very real concern. The banks have had their wings clipped by the credit crunch and during the recession even longstanding construction clients were being turned away. An almost wholesale halt in traditional bank funding and a stark drop in buyer confidence saw the number of completed units fall to only 137,000* in 2010 – the lowest number since the 1920’s. During the recession, a number of private specialist funders came to the fore that had a better understanding of the construction game. These independent lenders, who had access to private capital and investment funds, were charging high and ensuring their investments were safe through increased build standard monitoring and a much higher degree of due diligence. More secure insurance cover and warranty provision In essence there was less money to go round and the terms of securing money became more onerous. Not just in regards of repayment or lending conditions but also in the requirement for bank monitoring, more secure insurance cover and warranty provision. Lessons had been learnt and any investment offered had to be secured through increased layers of protection. Funders demanded better monitoring of builders’ designs, and on-site workmanship, guaranteed through longer and more frequent site inspections. Builders who could demonstrate a more consistent build track record and greater experience were able to secure funding. Many builders had to keep their teams busy, which inevitably meant a better build. They had fewer jobs on the books so quality effort could be focused on fewer schemes. This extended to other professionals, including architects and lawyers, who also saw their clients reduce. This meant that they too could concentrate on the fewer developments they were working on. As a result, building standards significantly improved while times were tough. Economic conditions also saw the market turn in favour of the buyers who now held all the cards. Developers had to differentiate their product offering through better specification and the heightened quality of the homes they were trying to sell. New challenges to quality build As the construction market continues to gather pace these challenges will cease to have such an influence. Funding has already become easier to secure and schemes, such as Help to Buy, have created increased success at bringing new buyers into the market. As confidence has grown, more traditional lenders have also returned to the market and risk orientated terms and conditions of lending have relaxed. Funders have even started to allow buyer deposits to be used towards the cost of the build. The lack of building materials has resulted in lower quality replacements from overseas filling the gap left by British manufacturers that ceased operating during the recession. The industry is also seeing the adoption of innovative and often complicated build techniques that workforces have difficulty implementing. There is also the shortage of experienced labour, which has resulted in the housing sector being forced to fast-track less experienced workers and apprentices. More needs to be done to ensure that young people coming into the sector are the right quality and have the new skills needed to support the industry. Things are certainly looking up for house building in the UK. However, there are key questions that need to be addressed if we are going to ensure that the recovery in the market is long-term. The housing sector must ensure that build quality does not wither as the market gets stronger. The quality practices and the focused build inspections adopted when the market was slow and funders were more risk adverse must remain as part of the housing sector’s DNA. Brian Kilroy * Office for National Statistics (ONS) |
Mortgage Introducer Magazine
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Brian Kilroy is business development manager at BLP Insurance
It’s no secret that the housebuilding sector has been going through a bit of a recovery boost and in December the Office of National Statistics reported a two per cent rise in activity to the UK construction industry, with funding for development starting to flow again. This is a big step in the right direction but there are still a number of obstacles threatening the road to recovery in the long-term. As the market picks up pace, the industry is under increased pressure to ensure that building standards remain consistently high. The pressure to build quickly can be a real test of build quality standards. When the market was down, with less productivity, there was more emphasis on building top quality homes with more time for developers to focus on the details. We urgently need to provide additional homes to meet the ever increasing demand for property in the UK, but producing housing stock that is not sustainable and cost effective will not provide a long-term solution to the problem. Reduced margins as a result of shortages of labour and building materials will also see some developers opting for cheaper insurance options, regardless of the gaps in their cover. This will often result in heavy costs for homeowners in the future. Another key issue currently facing housebuilders is the availability of suitable land to build on. This shortage has been compounded by land owners who are either waiting for the market to pick up to boost their land price or over estimating its true value. We welcome the government’s initiative to enable communities to improve their local area by giving them the right to ask that under-used or unused land owned by Public Bodies be brought back into use. This is positive news for developers who are struggling to find land in prime areas. In order to future proof the recovery of the housing market the government needs to continue making the right noises and support developers efforts to get easier access to land and the subsequent planning approval needed to build more homes. But at the same time, more needs to be done to ensure that young people coming into the sector have the right training and skills to support the industry and ensure that high standards are maintained. It’s a difficult balance but a vital one if we are going to ensure that the recovery in the housebuilding market is long-term. |
Property Wire
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Survey finds third of UK homes in a mess when buyers turn up.
Almost a third of homes in the UK are untidy when prospective buyers arrive to view the properties, a new survey has found. Yet 22% of potential home owners are also put off by a messy or cluttered property when searching for their next home, according to Move with Us, which surveyed over 100 independent estate agents from its partner network. ‘It’s interesting to see that home owners are failing to carry out the most simple of tasks to help sell their home such as making sure it’s clean and tidy ahead of viewings,’ said Robin King, director at Move with Us. ‘Any professional estate agent will do their utmost to help sell a property but their efforts will be immediately undone if the moment a potential buyer walks through the door, they see a property that’s a mess. Purchasing a property is one of the biggest transactions of someone’s life and potential buyers will want to think that the property has been looked after by its current owners,’ he pointed out. ‘Sellers should work in partnership with their estate agent, and take action to ensure their property is attractive to potential buyers. With almost a quarter of potential home owners being put off by untidy property, a little elbow grease could mean the difference between selling a property or not,’ he added. A survey carried out by BLP Insurance, the housing warranty insurance provider, has found that a key concern among home owners in the UK is outside influences such as neighbours and council works. One in four of UK home owners surveyed worried about the potential impact of disruptive neighbours or the council granting planning permission to build something detrimental nearby. ‘It’s not just the risk of neighbours making a lot of noise or creating an eyesore but building work undertaken by them can potentially cause structural problems to your home or even reduce the value of your property quite considerably,’ said Brian Kilroy, business development manager at BLP Insurance. ‘If your neighbours are excavating or digging foundations near your property you are entitled to ask them to pay for a party wall surveyor to check that the work is carried out correctly and that any damage caused is put right,’ he added. The survey also revealed that nearly half of home owners in the UK consider general maintenance such as fixing drains and roofs to be another top concern when it comes to worrying about their homes along with not having sufficient cash to carry out repairs when necessary. ‘At the end of the day, owning your own home will always be costly but there are a number of things that you can do to protect yourself in case things do go wrong. Very few people are aware of the precautions that you can take to protect your property after a conversion for both the structural and non-structural elements of the building,’ Kilroy pointed out. ‘Taking out housing warranty insurance means that you can cover yourself and your investment should any defects occur further down the line. The policy belongs to the building, not the builder so you don’t have to prove who is to blame, just that there is a defect,’ he explained. ‘There are lots of elements that should be considered at the start of a build project which can reduce the risk of defects occurring later on in the project. Taking the time to inspect the groundwork and investing in a good reputable architect will pay dividends in the long run,’ he added. |
Choices Today Magazine
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The biggest concern for homeowners is…
A key concern among homeowners in the UK, according to a survey carried out by housing warranty insurance provider, BLP Insurance, is outside influences such as neighbours and council works. The research revealed that one in four of UK homeowners surveyed worried about the potential impact of disruptive neighbours or the council granting planning permission to build something detrimental nearby. Brian Kilroy, Business Development Manager at BLP Insurance, says: “It’s not just the risk of neighbours making a lot of noise or creating an eyesore but building work undertaken by them can potentially cause structural problems to your home or even reduce the value of your property quite considerably. “If your neighbours are excavating or digging foundations near your property you are entitled to ask them to pay for a party wall surveyor to check that the work is carried out correctly and that any damage caused is put right.” Some 44% of those surveyed consider general maintenance such as fixing drains and roofs to be another top concern when it comes to worrying about their homes along with not having sufficient cash to carry out repairs when necessary. Kilroy added: “At the end of the day, owning your own home will always be costly but there are a number of things that you can do to protect yourself in case things do go wrong. Very few people are aware of the precautions that you can take to protect your property after a conversion for both the structural and non-structural elements of the building. “Taking out housing warranty insurance means that you can cover yourself and your investment should any defects occur further down the line. The policy belongs to the building, not the builder so you don’t have to prove who is to blame, just that there is a defect.” There are lots of elements that should be considered at the start of a build project which can reduce the risk of defects occurring later on in the project. Taking the time to inspect the groundwork and investing in a good reputable architect will pay dividends in the long-run. |
Housing Management and Maintenance Magazine
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Finance is holding back aspiring home builders
A recent survey from BLP Insurance, the housing warranty insurance provider, showed that 54% of homeowners in the UK blame the lack of available funding as the key factor stopping them from building their dream home and nearly one in five homeowners blame the lack of available land in the right area. The survey was carried out amongst homeowners living in the UK and found that 17% of those surveyed blamed the lack of land available and 14% didn’t have the time needed to be able to make the commitment to building their own dream home. Other factors that were highlighted included the inconvenience of the building work and the lack of expertise including not having the right contacts for builders and architects. Other worries were having a young family and the additional stress that the building work would cause including the fear of dealing with so called rogue traders. This news comes as the government looks at new initiatives to help generate housing as local governments come under increased pressure to supply more and more new homes. There have also been calls in the last month for the public sector to start releasing land to make way for new developments and get the building boom under way again. Government figures show that the number of new homes built in the year to March in England was 108,190, down 8% on the year before and 49% below their peak in 2007. Private house builders have accounted for a growing proportion of the homes built in Britain in recent months following the government’s Funding for Lending scheme, which cut the cost of borrowing. Brian Kilroy, Business Development Manager at BLP Insurance, says: “The lending community are starting to wake up from the hibernation brought on by the recession and there are now more products and funding vehicles on the market which are available to self builders to allow them to get their projects underway. But more still needs to be done to make access to funding easier for a much wider group of aspiring self-builders. “Private landowners are starting to realise the financial potential locked in their land and the availability of smaller plots have increased over the last 12 months paving the way for aspiring private house builders to construct their dream home. There is no real immediate solution to solve the problem of lack of land and local councils are under significant pressure to find space for more homes to keep up with the demand while also protecting the Green Belt areas.” Building your own home is often a lifelong ambition and isn’t something that should be entered into lightly. BLP Insurance believes it is vital that you also take measures to protect your financial investment and seek housing warranty insurance to protect the property should any defects occur. This will ensure that your home and your financial investment is fully protected in the event that anything goes wrong structurally at a later date. It also means that help and advice is on hand throughout the building process offering the developer further reassurance. |
24Dash.com
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Finance issues holding back over half of aspiring self-builders
Aspiring self-builders are being held back by a lack of available finance, a survey has revealed. BLP Insurance's research found that 54% blamed financing issues for their inability to realise their dream homes, while 17% blamed a lack of available land. Meanwhile, 14% said that they didn't have enough time to commit to building their own home. Other obstacles included the inconvenience of the building work and the lack of expertise such as not having the right contacts for builders and architects. Additional worries include having a young family and the fear of dealing with rogue traders. The survey comes as the government looks at new initiatives to generate housebuilding. Government figures show that the number of new homes built in the year to March in England was 108,190, down 8% on the year before and 49% below their peak in 2007. Private housebuilders have accounted for a growing proportion of the homes built in Britain in recent months following the government's Funding for Lending scheme, which cut the cost of borrowing. Brian Kilroy, BLP's business development manager, said: “The lending community are starting to wake up from the hibernation brought on by the recession and there are now more products and funding vehicles on the market which are available to self-builders to allow them to get their projects underway. But more still needs to be done to make access to funding easier for a much wider group of aspiring self-builders. “Private landowners are starting to realise the financial potential locked in their land and the availability of smaller plots have increased over the last 12 months paving the way for aspiring private house builders to construct their dream home. There is no real immediate solution to solve the problem of lack of land and local councils are under significant pressure to find space for more homes to keep up with the demand while also protecting the Green Belt areas.” |
PR Log
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FUNDERS’ CAPITAL EXPOSURE ON DEVELOPMENTS AVOIDABLE
Gaps in warranty cover can be removed to free up capital BLP (Building LifePlans), the residential and commercial building defects insurer is claiming that development funders’ typical development warranty cover does not have sufficient limits to cover the full cost of developments for a growing number of schemes, leaving them potentially exposed to any shortfall should a building defect arise – having to reserve capital to cover the shortfall themselves. The insurer believes that commercial and high-end residential conversions are most exposed due to warranty provider cover limits of £500,000 per unit within the development. According to the insurer, London in particular carries the greatest risk in this regard with many conversions creating units worth well in excess of £500,000 and in some cases more than £1 million. Brian Kilroy, sales manager at BLP Insurance, says: “Funders are aware that warranty cover leaves them with a headache as to whether to reserve capital to cover defects on their builds or take the risk and use that capital for other developments. We are urging them to consider building/latent defects insurance instead of a warranty since the building is insured to its full rebuild value rather than the limits of a warranty; immediately freeing up capital for other developments and also preserving the value of their investment.” Much time and consideration goes into the contract negotiations between funders/investors and developers, however the latent defects cover is often taken for granted, leaving lenders and investors potentially exposed to some significant risk. While it is possible to sell or lease commercial property without latent defects insurance, many lenders are now insisting on it, particularly for residential developments. Funders are also beginning to request it as a way to protect their investment, against the consequence of building failure, or simply to make their offer more attractive to potential commercial tenants. Further, defects insurance allows for full risk transfer after just 12 months, unlike its competitors who make the developer liable for 2 years. As a result of this, many banks, investors and funders are now insisting on latent defects insurance on all schemes before they will consider a partnership or any type of development involvement due to restrictions in developers claiming on a warranty. Kilroy says: “If a funder is acting as development partner, perhaps within an SPV, and intends to retain units for rental purposes, the 3rd party warranty will not respond. So, yet again, the funder is left with no cover for their investment.” |
Insolvency Today
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Brian Kilroy (Business Development Manager at BLP Insurance) explains the difference between new homes warranties and Latent Defects Insurance (LDI) and looks at how simple it is to arrange good cover that can boost a distressed site's sales value.
According to data from a number of industry sources, over 5,000 construction companies in the last two years and around 1,200 real estate companies have been lost; and insolvency practitioners (IPs) are being pressurised to sell distressed sites for as much as possible as quickly as possible – a tall ask in today’s uncertain property market. So it's worthwhile to look at the difference between new homes warranties and LDI and how good cover can raise the value of a distressed site when put up for sale. When a developer or construction company goes into administration with a distressed site there is a daunting amount of paperwork covering everything from planning permission and building regulations through to the new homes warranty/LDI, which are all absolute pre-requisites for home buyers to get a mortgage. However, changing warranties can be costly and time consuming for insolvency practitioners to arrange as Brian explains: “In the past couple of years I have taken dozens of calls every month from IPs dealing with distressed sites who are unaware that a development with the best LDI cover will be worth considerably more when they sell it and how simple the cover is to arrange – we normally manage the entire transaction in one phone call. The first question from most IPs usually ask is why does the development need a warranty or LDI? The answer is because the mortgage lenders insist on them to ensure that, if there are any structural defects with the building (for example a fault in the design or construction of the load-bearing portions or weatherproofing of the property) the faults will be repaired. In essence, they are protecting their investment and the value of their property. Why LDI cover? The next question is what is the main point of difference between a warranty and LDI? With a warranty the developer is covered and with LDI the building is insured. It is a fundamental point of difference because it means that, if a problem appears in a new property, the homeowner with a warranty has to prove negligence to the warranty provider. If the warranty provider is satisfied that there has been negligence, they will direct the developer to rectify the defect (who will pass it on to the contractor responsible for the work). This process is often lengthy and can be fraught with complications when builders and contractors have gone out of business. With LDI the building is insured. So, if there is a problem, all the homeowner has to do is prove damage and the fault will be repaired (by the original contractor or an agreed supplier) and the whole process normally takes a few weeks leaving the homeowner to live in their repaired property while the insurance company sorts out the liability. Without a warranty or LDI, a new home is worth absolutely nothing on the open market as it is unmortgageable and the builder/developer will not be able to sell the properties. However, although it is not unusual for a developer to change contractor during a job, it is almost unheard of for a warranty to be swapped from one developer to another. You would think that, if a site has been built to the correct specification and has been inspected by the warranty provider during the build, it would be easy to simply re-issue the warranty with another developer. Not so. Making amendments to a warranty often proves to be difficult. In the majority of cases, the developer’s only option is to take out a completely new policy and, very often, the cover provided is inferior and can even carry penalties for late registration because the works have already started. For an IP this means that the distressed site’s value could be significantly affected because not only has the inferior warranty cost more, but it has also undermined the market value of the completed properties. In today’s property market, a buyer will use something like inferior cover as a bargaining tool to get a price reduction and mortgage lenders will almost certainly run shy of anything that adds to their risk. I am taking dozens of calls every month from developers caught in this situation and nine times out of ten I can help as our LDI policies are all tailored to each site so if any aspect of the development changes, we can change the policy. We do not have registration fees and our sales process is far simpler, which means that even developments that have started (or even completed) can benefit from this cover. |
Self Build and Design Magazine
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Concern over house build warranties
A change in the security requirements demanded by companies offering warranties on new builds is affecting anyone who is building, renovating, converting or extending residential property. The warning comes from Brian Kilroy, business development manager at BLP Insurance which provides cover to the construction industry. “Every day for the last two months I have taken a phone call from an SPV, developer or builder whose project is in jeopardy because their application for a new homes warranty has just been turned down or the company they have approached has raised their security requirement by up to 500 per cent,” he said. “As most new build requires a new homes warranty or guarantee, this sudden hike in registration requirements is taking its toll on builders.” Mr Kilroy said underwriters were raising premiums to cover the risk of builders or their suppliers going bankrupt during the build or during their liability period – the first two years after a sale. “Because the builders only find out that their deposits will be exponentially higher than they have budgeted once they are committed or already on site, they are left with a large bill.” “BLP provides insurance rather than warranty cover so we do not require registration fees or loss of deposit cover,” he said. |