The All Party Parliamentary Group Inquiry Into the Quality of New Homes In England has made ten recommendations and says house builders should be “upping their game and putting consumers at the heart of the business model. Alongside this, Government should use its influence to promote quality at every opportunity.” The cross party committee of MPs and construction experts called on the Government [DCLG] to set up a New Homes Ombudsman to mediate in disputes between homebuyers and housebuilders. This is the number one “key recommendation” of 10 recommendations setting out measures to improve the quality of workmanship in new homes and provide consumers with easier and cheaper forms of redress, to get defects and problems fixed.
APPG Inquiry Report Recommendations:
Recommendation 1: DCLG should initiate steps to set up a New Homes Ombudsman.
“The role would include mediating disputes between consumers and their builders or warranty providers to offer a quick resolution procedure paid for by a housebuilders’ levy. We see this is as the key recommendation to provide more effective consumer redress, if things go wrong, and a good way of applying pressure on housebuilders and warranty providers to deliver a better quality service. Our view is that the new service should be funded by a levy on the sector, but it would need to be completely independent and replace the dispute resolution service offered as part of the Consumer Code for Home Builders. Our recommendation picks up on one made by the Office of Fair Trading, in its 2008 market study into the house building industry, which suggested that, if the industry failed to make satisfactory progress, it would recommend further intervention in the form of a statutory redress mechanism for new homebuyers funded by a levy on the industry.
Although funded by the construction industry [housebuilders] it should be a public body not under the industry’s control. It should provide a cheap, quick and effective system of redress and have power to enforce standards and award compensation. This would put pressure on housebuilders to up their game in the first place and spur them on to improve workmanship and increase levels of service.”
This echoes the findings of the 2008 OFT Market Study into Homebuilding stated (page 165):
“7.12 there is no scheme which directly and comprehensively covers failings by the homebuilder – in the event that the industry fails in its efforts to bring about change, we recommend the introduction of such a scheme.
7.13 If we reach the point where it is necessary to recommend that a statutory redress scheme is introduced this will, unfortunately, mean that the industry scheme has been unsuccessful. If this were to happen, we would recommend a single statutory scheme to which all homebuilders are obliged to belong, set up independently of the industry, and funded by a levy on the industry.
7.14 The central objective of the recommendation is that the introduction of a mechanism, via which homebuyers have a means of redress directly against the homebuilder, should be a force for change in the industry. This means that the scheme should have real weight and the ability to award redress and compensation for any failings in the sales process, shortcomings in contracts, delays or faults.”
I have been campaigning for a New Homes Ombudsman for over two years. Anyone reading the APPG Report can be left in no doubt whatsoever that, 8 years on from the OFT Market Study Report, the industry has indeed failed in every respect and it is time to set up a wholly independent, government-appointed New Homes Ombudsman, funded by a housebuilding levy to replace the industry’s inadequate, wholly unsatisfactory and failing Consumer Code for Home Builders Dispute Resolution Scheme which adjudicated just 170 cases between April 2010 and 1 July 2016, 80 of which being made in the last 18 months. The maximum claim is £15,000 and compensation for “inconvenience” is limited to just £250. There have been no CCHB Annual Reports since April 2014 which is suspicious. A month ago, a spokesperson for the Code said: “Our most recent Annual report is currently in production and will cover the two years 2014-15 and 2015-16, enabling the major consultation and review of the Code that took place during this period, to be incorporated in the report. Once completed, the report will be available for download from our website.”
A New Homes Ombudsman must be set up now:
FREE – FAIR – FOR EVERTHING
Recommendation 2: Housebuilding sales contracts should be standardised.
“This would remove much of the uncertainty that presently arises from the bespoke nature of each builder’s sales contract, which can deter so many from pursuing claims. The Law Society’s Standard Conditions of Sale work well for normal conveyancing transactions and there is no reason why a similar approach should not work for new homes. We would expect the contract to set out how defects are handled, including provision for dealing with disputes before referral to an ombudsman.”
Housebuilders have their own form of sale contracts, often with specific terms that are invariably designed to suit the best interests of the housebuilder. It is often difficult, if not impossible for new homebuyers, even with legal representation, to change or renegotiate most of the terms. Standardised contracts, with specific reference the procedure for dealing with defects and disputes would make to process clearer and fairer for consumers.
Recommendation 3: Buyers should have the right to inspect properties before completion
“There should be a mandatory right (which could be introduced by the inclusion of suitable provisions in the standard form contract) for buyers to inspect and, should they wish carry, out a full survey of their property prior to financial completion. We suggest that they be given 10 days’ notice by the builder of when their property can be inspected. If after the inspection the buyer/ surveyor deemed that the property is not capable of occupation, the final financial completion can be delayed. Such a provision would also discourage builders from serving notices to complete prematurely, or concealing major defects until after they have received the full purchase price, and would also encourage better quality control and site management pre-completion. In our view, the above suggestion would be relatively easy to implement, and would encourage improvements to construction quality without deterring capital investment or adversely affecting land values for developments already in the pipeline.”
Indeed this could be easily implemented by the industry. It was even supported by Peter Andrew, Deputy Chairman of the industry’s own body, the Home Builders Federation (HBF) during the session he attended: “I wholly support customers inspecting their property prior to completion – there are occasions when properties are not perfect at the time of handover to the owners”
So why do most of the large plc housebuilders routinely, often quoting “company policy” refuse access to both the new homebuyers themselves and their snagging inspectors until after legal completion? The only reason, as the HBF acknowledges, is because new homes are “not perfect at the time of handover” but they could and should be. Indeed, I would go further and say it is because the homes are not even 100% finished. I said in my submission, that buyers should have a mandatory right to inspect the new home they are buying before they legally complete. I would like this to go further, with a legal requirement for qualified inspectors (Professional Snagging Inspectors), chosen by the buyer and paid for by the housebuilder, to independently snag and inspect every new home before financial legal completion. New homebuyers are not best qualified or placed to thoroughly and fully inspect their homes.
Recommendation 4: Builders should be required to provide buyers with a comprehensive information pack.
“The purpose would be to improve transparency of the design, building and inspection process. We would like to see housebuilders be required to provide prescribed and comprehensive written information to buyers during the conveyancing process as part of a standard contract (and in an electronic format) to make it easier for buyers to take issue if what they get is materially different to what they contracted for. The pack should contain:
- Designs and plans, specifications etc.
- Details about both warranty and building control inspections, when carried out and by whom.
- What the warranty covers in plain English
- Which version of the Building Regulations the house was built to and complies with
- How to contact the builder to rectify defects.”
For too long, housebuilders and their site-based sales staff have misled new homebuyers, often deliberately, even though it is against the law and the industry’s own Consumer Code to make misleading statements or withhold relevant information that would enable a buyer to make an fully-informed decision. This has resulted in many of the claims made using the Code Adjudication Scheme. Many others were dismissed due to lack of evidential proof from the buyer. A comprehensive information pack would provide indisputable evidence of the design, specifications, plans and standards the new home should be built to. As it would provide clarity for both parties, I cannot understand why this is not already voluntary standard practice across the industry. Housebuilders should also be required to give buyers written confirmation of all verbal representations.
Recommendation 5: There should be a review of laws governing consumer rights when purchasing new homes.
“There is a strongly held view that in disputes, the balance has been tipped too far in favour of housebuilders. This includes the Ruxley v Forsyth case, which set precedent whereby housebuilders do not have to pay the costs for putting wrong work right if the costs are disproportionate to the impact of getting it wrong.”
The often used saying is that consumers have more rights when buying a kettle or a toaster or even a Mars bar than they do when buying a new home is a fact. You cannot get a full refund if your new home fails to meet your expectations and is defective. As it currently stands, you may not even be allowed to see it before you own it. It is to be hoped this and other recommendations bring about a much needed change.
Recommendation 6: DCLG should commission a thorough review of warranties.
“At present, warranty providers offer varying levels of cover and consumer protection. Our evidence suggested that warranties on new homes did not match the expectations of the consumer and our suggestion is that they need to be reviewed. In the context of buying a new home, consumers may well be prepared to pay more if it meant getting a better degree of service and would pay for additional cover on what they already get as part of the warranty. We would expect the review to:
- Establish whether the warranties currently provided are adequate; what the minimum requirements should be, how they would need to change to achieve the needed level of cover and what the cost implications might be.
- Establish easier form of redress with warranty providers as part of a New Homes Ombudsman role. At the moment, as financial bodies, warranty providers are covered by the Financial Services Ombudsman, which we were told was not always effective in dealing with the types of disputes we are looking at.
- Look into ways that warranty providers and housebuilders can set out more clearly at the time of conveyancing what the warranty actually covers.”
Any review should including extending the housebuilders’ responsibility and liability for defects occurring for the first five years after completion, not two as at present, further encouraging housebuilders to be more focused on quality.
Recommendation 7: Housebuilders should instigate a new quality culture by adopting quality systems to ISO standards.
“If defects are to be reduced and satisfaction levels improved, there needs to be an industry aspiration to achieve a zero-defects culture, with greater emphasis on quality assurance and compliance measures adopted as standard by housebuilders. We would like to see the Home Builders Federation taking a more active part in driving this.”
Whilst an admirable recommendation, in reality this is never going to happen. Defects in new homes are widely regarded as the norm, standard and inevitable. Buyers are even told to expect to have problems! It would take a complete mind-shift at every level within the industry for quality assurance and compliance measures to be adopted as standard and apart from PR statements and spin, I cannot see the HBF doing anything to drive this.
I suggested to the APPG Inquiry that new definitive quality and workmanship standards should be incorporated in both the building regulations and NHBC’s warranty Standards with “should be” guidance, replaced with “must be” requirements.
Recommendation 8: The industry should significantly increase skills training programmes.
“We would like to see greater emphasis on training and investment for both new and existing workers to embed a quality culture, whilst also bringing new people into the sector. We believe local authorities and Government should leverage more training by making it a condition on sale of their land.”
The Construction Industry Training Board (CITB) was set up as long ago as 21 July 1964 to “work with employers to encourage training, which helps to build a safe, professional and fully qualified workforce.” In every housing boom since, more skilled people have been required and at the start of every slump, so called skilled trades people lost their jobs. Any new training initiatives devised by the industry itself, will be doomed to fail as they have repeatedly during the previous 52 years. Currently there are three times as many people are leaving (60,000 a year) the building industry as are joining (15,000-20,000). As the CIOB estimate that the cost of an average apprenticeship works out at around £24,000, so does it make economic sense for the industry to invest in training? Of course not that is why there has been a ‘skills shortage’ for over 50 years. To improve quality of new homes there needs to be a change of attitude across the industry at all levels. It is not a skill, but a desire to care, take pride and have a moral conscience.
Recommendation 9: A minimum standard should be set for compliance inspections.
“The responsibility for construction of defect free homes should rest with the housebuilder who should not rely on third party inspections to drive up quality. But we recognise that inspections from third parties do have a vital role to play and we need to ensure that the corners are not cut. We are concerned that competition in building control might be fuelling a race to the bottom and we are therefore recommending there should be a defined minimum number of inspections that local authority building control and approved inspectors in the private sector and warranty providers should not fall below. We suggest that the minimum level should be considered by DCLG in consultation with the industry. We are also recommending inspection reports are made available to the public and form part of the information pack provided to purchasers when they buy a new home. (See Recommendation 4)”
There are currently eight stage inspections (six are mandatory) required for Building Control. The NHBC told the Inquiry that every home it inspects [for its warranty presumably] is visited five times; “purely to prove to our underwriters that the property is standard risk”. I suggested there should be more inspections and that every home must be inspected at each stage not just those on sites risk assessed at for likely or possible non-compliance.
Recommendation 10: Housebuilders should make the annual customer satisfaction survey more independent to boost customer confidence.
“We believe it would boost consumer confidence if the Customer Satisfaction Survey is seen to be more independent of the NHBC and the HBF – bringing in a high profile third party to conduct and take ownership of the research in their name. Furthermore we would like to see more in depth research on consumer trends based on the follow up survey carried out by the NHBC in their nine-month survey. We feel this could provide a real insight into how builders are tackling initial defects and complaints.”
During my presentation I called for a fully independent new home customer satisfaction survey, with all results for each housebuilder made public along with the NHBC 9-month survey results. The NHBC, warranty provider for 80% of all new homes built each year, acknowledges that more could be done to improve both quality and satisfaction. It said that: 0.7% of warranty holders each year have problems stemming from latent defects which constitute a valid claim.” However, this does not reflect defects in homes not judged by the NHBC to be “valid claims” which account for around 9,000 homes each year. The NHBC confirmed that “satisfaction levels from their 9-month survey are generally 5% to 10% lower than those measured at eight weeks.” This would put most builders firmly into 3 star rating territory, demonstrating a fall in satisfaction levels once their customers realise just how bad their new homes are and the indifference of their builder’s to fixing problems. The housebuilders can (and do) freely and easily manipulate their customer’s satisfaction survey responses and have even encouraged their buyers through threat or favour to give positive responses than they might otherwise have done.
However, whilst a great step forward towards better quality new homes and increased consumer rights for new homebuyers, this APPG Inquiry and Report despite ten excellent recommendations, failed to make the most of the opportunity and to recognise the need for additional initiatives by also recommending and including the following suggestions made in oral and written presentations:
- Fully independent gas and electrical installation safety inspections. There should be an end to the current box-ticking, self-certification by those installing.
- Building larger and healthier homes. Revision to the building regulations to include the new space standards and a minimum natural light lux levels for each room.
- Introduction of new minimum standards for customer service.
- Change the housebuilder’s bonus culture away from production, making quality, customer satisfaction and after sales service a large part of the KPI bonus calculation
- End state funding and government help such as Help to Buy for housebuilders that fail, rated three stars or less and fail to win sufficient NHBC Quality Awards.
- No housebuilder should be allowed to encourage their buyer to use any particular firm of solicitors or mortgage broker.
- Minimum build durations in Building Regulations and Warranty Standards as more time to build will result in better built, higher quality new homes. No new home should be constructed in a time-scale of less than 12 weeks.
- A new rule that only homes independently inspected four weeks prior to a housebuilders’ year-end would be allowed to legally complete before the financial year-end to prevent homes being rushed.
- A legal requirement for building projects over a certain value/size to have an independent, qualified inspector on site full-time, every day for the duration of the building works.
- A photographic record of construction and during every mandatory stage inspection should be taken for future investigation of issues
- An end to “gagging clauses” aka confidentiality clauses used by both housebuilders and warranty providers such as the NHBC. Consumers have a right to know what settlement was reached. Openness and transparency can only improve quality, service and trust in the long term.
- Limit the practice of landbanking by large plc housebuilders to encourage more competition.
- All warranty providers should be regulated and independently audited.
It remains to be seen whether all or any of the recommendations made in this Inquiry Report are implemented by the government. APPG Chair Oliver Colvile has previously stated that he is “positively passionate about this issue.” At the time the Report was published Maria Miller MP, Vice-chair of the group said: “The APPG has taken a hard look at the need to raise the quality of new build housing. The role of the building control inspector is a key part of the process, and the report tackles this head on, both by recommending a minimum level of compliance inspections, and by giving new home buyers information about the building inspections carried out. Making the building inspector’s reports available to people who are buying a new home is an important way to improve transparency, and I welcome the fact that in response to my call for change, the Minister has already indicated that he will act.”