New Build Warranties – Owners exposed as Insurer goes bust

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Approximately 21,000 owners of new build properties have been left without cover following the bankruptcy of Alpha Insurance last year.

Alpha Insurance was a Danish company which provided direct insurance cover to UK homebuyers as well as underwriting new-build warranties provided by other companies including CRL. As a result of the collapse of Alpha Insurance, any policies they issued or had underwritten were terminated on 11th August 2018.

Since August 2018, the Financial Services Compensation Scheme (FSCS) has been working alongside the Company liquidators and CRL to secure an alternative insurance provider who would be willing to take on the existing warranties. Despite positive discussions taking place with a rated insurer, a deal agreed in principal collapsed, and it was recently announced that no warranties would be transferred.

As such, thousands of homeowners have been left without any insurance cover against defects which arise within the first 10 years of construction. The consequences could be catastrophic for those affected as they would need to fund any repairs themselves and may have serious difficulty in selling their property until it is more than 10 years old. Whilst a cash investor may be willing to ‘take a view’ for the right price, it is extremely unlikely that any mortgage lender would be prepared to lend against the property therefore significantly reducing the number of buyers available.

The FSCS has published a dedicated page on their website which contains information and updates for those affected https://www.fscs.org.uk/failed-firms/alpha/. Whilst it would seem that most of the affected homeowners have received a refund of the policy premium, this is going to be of little comfort to those who have purchased properties in the last few years which may not yet have shown signs of structural defects.

An update from the FSCS on 19th August advised that “Once the premium insurance refund has been paid, FSCS recommends that policyholders seek professional advice on obtaining replacement cover as soon as possible by contacting a suitable insurance broker who specialises in latent defect/structural damage policies. Policyholders may be in breach of their mortgage terms and conditions if they do not have a valid latent defect policy for their property. Should policyholders not know of a suitable insurance broker to help with replacement cover, they can get help via the British Insurance Brokers’ Association’s ‘Find-A-Broker’ service by telephoning 0370 950 1790, email fab@biba.org.uk.”

Those affected may wish to consider following the FSCS guidance and trying to obtain their own replacement warranty. Before taking out such a warranty, it would be prudent to check that the chosen provider is on the list of insurers who are acceptable to most High Street mortgage lenders. The relevant information is located in the UK Finance Mortgage Lenders’ Handbook which can be found on the following website https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/1913/. It is worth noting however, that this is simply a list of insurers which are currently acceptable to each lender. It does not guarantee the current or future financial stability of the insurer (until their collapse Alpha Insurance was on this list as an approved insurer) and homeowners ought to take professional advice from a financial advisor/insurer broker if they have any concerns in this respect

 

If you have any queries regarding new build warranties or any other aspect of residential conveyancing, please contact Stephen Carr on 01306 884432 or email scarr@meaby.co.uk