Insurance and warranties

Structural Warranty Policy

A structural warranty policy guarantees the structural integrity of your building and steps in to pay for the correction or repairs, much in the same way as your appliances, e.g. washing machine, are covered subject to policy terms, conditions and exclusions. Most warranty providers will inspect your approved design drawings before offering you their terms. They will then carry out periodic inspections of the work in progress to validate the warranty. Like the building control inspector in NI or the assigned certifier in ROI they may require you to notify them that construction has reached a certain stage and invite them to verify this, prior to work continuing. They may also turn up unannounced.

It is important to note that warranty inspectors are not in any way linked to building control and certification, they may require standards above that which would normally satisfy statutory requirements. Deregulation in NI has allowed Building Control to offer a warranty scheme option but this does not change or overlap with your statutory obligations. Where warranties differ from statutory building control compliance is that they eventually become an insurance policy against which you or a future owner can make a claim in the event of specified defects. Some warranty providers offer schemes whereby the builder is solely responsible for any defects occurring in the first year, while others offer joint liability between the builder and the warranty provider in the first year. It is however possible to find some providers who will take full responsibility from the point where construction is fully completed. If you are project managing your self-build and using subcontractors, then a structural warranty which takes full responsibility for the guarantee from completion of construction may be the best option.

Having spent two years adjusting building warranty claims in NI for one of the leading market providers I can honestly advise that it is best not to inform your builder if your warranty provider takes full responsibility after completion. Although the vast majority of said claims were on properties within developments built by speculative developers, it was difficult not to be of the opinion that the builder did not employ best practice methods as he knew there would be no redress against him. Schemes that require the builder to be approved and registered may offer additional protection in this regard.

It is not essential to have a warranty scheme in place, but regardless of whether you are building a new house or converting, renovating or extending an older property, warranty schemes provide an additional incentive for a potential future buyer should you ultimately have to sell your property. Many lenders also require you to have a warranty before they are willing to lend you money, primarily because it will further validate the quality of construction they are lending against, but also because they wish to protect themselves from having to sell an un-warrantied property in the future. In fact in NI, your mortgage provider will often require that you have a 10-year warranty in place while in ROI this isn’t typically a condition of approval.

The identity and relative security or financial strength of the Structural Warranty provider is of the utmost importance. Unlike other forms of insurance which deal with claims occurring in the short term, e.g. during the construction phase or the twelve month term of your house insurance policy, Structural Warranty Insurance will typically provide protection for a period of ten years from completion of construction. For the policy to be of any value to the homeowner there must be a high probability that the insurance company who issued the warranty will still be in existence much further down the road when a claim may occur, typically seven or eight years after completion. For this reason the homeowner should be discerning when choosing their warranty provider. Look behind the name of the warranty product / promoter and find out who the insurance company is, what is their financial rating (as issued by a credit rating agency, which you can check online), and then make an educated decision on whether the warranty is likely to be of any value to you or whether you would be better putting the cost of the warranty in the bank for a rainy day!

From a resale perspective or if you intend to convert your home to a conventional mortgage after construction, it is important to ensure that your warranty scheme is accepted by your potential mortgage lender. There have been cases where a new mortgage lender to the local market has had to be furnished with additional ‘professional certificates’ before accepting an existing warranty provider. Although the costs of providing this additional information fell to the warranty provider, it can lead to a considerable delay in the legal process in a seller/purchaser scenario or a frustrating and stressful cash-flow problem for a self-builder converting to a mortgage.

Although a warranty scheme effectively becomes an insurance policy upon completion of the construction works, it should not be viewed as an alternative to insurance during the construction phase.