LABC warranty not accepted by Lenders

Pedrodiniz

Hi guys, just thought I’d post here in case anyone else is having or has had, or more importantly Is possible at risk of having happen to them what has just happened to us!

We were on the eve of exchange last week and received a call from our solicitor stating that our mortgage provider was unable to lend on the new house because of the terms of the LABC warranty. This is an alternative to NHBC but is often used by smaller developers. The issue they had was regarding the cover. LABC (in this case ‘buildzone’) cover the reinstatement (rebuild cost) of the property whereas NHBC covers the market value or £1 million. The mortgage company would only accept market value and not reinstatement costs!

I thought this could be just a lender specific issue and asked our Broker if she could search for other lenders and she came up with a bewildering response of yes’s and no’s but invariably after closer inspection they all started expressing concerns and were expecting the LABC warranty to be the same as NHBC (full market value).

Can I ask you to make sure that before you get the point we did and have spent money on searches and other fees that you expressly confirm with your broker, or solicitor that the lender will lend on a rebuild warranty (not just from the sales desk but officially from the underwriters). My concern is that this issue has been going on unnoticed by the lenders and the occasional declined lend has just been brushed under the carpet.

We now find ourselves with a developer that is unwilling to budge on a warranty and a lender that is unwilling to budge on a mortgage! Off to buy a house with an NHBC warranty that actually covers the property at market value and not one that is cheaper for a developer!

Apologies for the mega long post but I really don’t want anyone else to find themselves in our position without being forewarned!

boundy

I would of thought reinstatement cost would of been the preferred type of cover, as in some cases this can far exceed the market value of a property. Is the NHBC cover market value / £1 million, which ever is lower or which ever is higher? If I was in a property I loved that needed major rebuild cost under the warranty and this cost exceeded the market value, would NHBC just declare a total loss, leaving you trying to find a new home, what if your circumstances had changed and wouldn't qualify for another mortgage,where would that leave you? LABC would meet the reinstatement cost, regardless of value, no new mortgage.

I might be way off the mark, but that's how it reads to me

Pedrodiniz

Hi, thanks for your post.

The Reinstatement cost was indicated as £180000 by the lender’s surveyor/valuer and our purchase price was £495000. The LABC warranty was limited at £200000, reinstatement is the cost of rebuilding the property which is significantly less than the market value.

boundy

Pedrodiniz wrote: »

Hi, thanks for your post.

The Reinstatement cost was indicated as £180000 by the lender’s surveyor/valuer and our purchase price was £495000. The LABC warranty was limited at £200000, reinstatement is the cost of rebuilding the property which is significantly less than the market value.

You left out that key nuget of info in your first post

Thrugelmir

Pedrodiniz wrote: »

The Reinstatement cost was indicated as £180000 by the lender’s surveyor/valuer and our purchase price was £495000. The LABC warranty was limited at £200000, reinstatement is the cost of rebuilding the property which is significantly less than the market value.

If , for example, the land was later found to be contaminated. Then the total rebuild cost would far exceed build reinstatement cost. The lender needs to fully protect the monies it advances.

Warranties can be tailored to cover a number of eventualities. There's not a fixed one fits all policy. Ultimately probably boils down to the developer wishing to maximise profit. Cost of the warranty will factor in financial strength of the developer amongst other criteria.

movingtomacc

Thank you for sharing, that's very useful to know! We just viewed a property (didn't offer on it) last week which had a non-NHBC warranty (not sure if it was an LABC one) but I just assumed the two would be similar.

Pedrodiniz wrote: »

Hi guys, just thought I’d post here in case anyone else is having or has had, or more importantly Is possible at risk of having happen to them what has just happened to us!

We were on the eve of exchange last week and received a call from our solicitor stating that our mortgage provider was unable to lend on the new house because of the terms of the LABC warranty. This is an alternative to NHBC but is often used by smaller developers. The issue they had was regarding the cover. LABC (in this case ‘buildzone’) cover the reinstatement (rebuild cost) of the property whereas NHBC covers the market value or £1 million. The mortgage company would only accept market value and not reinstatement costs!

I thought this could be just a lender specific issue and asked our Broker if she could search for other lenders and she came up with a bewildering response of yes’s and no’s but invariably after closer inspection they all started expressing concerns and were expecting the LABC warranty to be the same as NHBC (full market value).

Can I ask you to make sure that before you get the point we did and have spent money on searches and other fees that you expressly confirm with your broker, or solicitor that the lender will lend on a rebuild warranty (not just from the sales desk but officially from the underwriters). My concern is that this issue has been going on unnoticed by the lenders and the occasional declined lend has just been brushed under the carpet.

We now find ourselves with a developer that is unwilling to budge on a warranty and a lender that is unwilling to budge on a mortgage! Off to buy a house with an NHBC warranty that actually covers the property at market value and not one that is cheaper for a developer!

Apologies for the mega long post but I really don’t want anyone else to find themselves in our position without being forewarned!

Retired_Mortgage_Adviser

Interesting. You learn something new every day! Thank you for taking the time to post your experience.

Pedrodiniz

Right, just had a resolution to this! The lender absolutely refused to lend without a full market value warranty. We had to share the cost 50/50 to increase the cover to market value!
As I view it and after lots of talking to the solicitors, brokers and the developer you have three choices.
1. Make sure the warranty covers full market value (nhbc covers this but others do not)
2. Take the risk that your lender/solicitor won’t raise this and realise that this warranty does not cover potentially what it should cover. Remember if this gets through your lender, if you have to sell within the ten year period and your buyers lender has an issue, you could end up with an unsellable property.
3. Make sure your broker gets absolute confirmation from the lender that they will accept this warranty before you proceed and ensure that any future buyers will not be prevented getting a mortgage (although I’m not sure how anyone could do that)

We have had an absolute nightmare over the last few weeks, have nearly lost our buyer in the process! I just don’t want anyone else to go through the same!

MSE_JC

Hello all,

The Forum Team have offered LABC Warranty a right of reply in this instance. Their message is as follows:

​We would like to express our sympathy for the difficulties that you have experienced with the purchase of a new home, but also clear up some misconceptions in this post.

 

LABC Warranty has been trading since 2007, covering hundreds of thousands of new-build homes across England and Wales. Our insurance policies are backed by A-rated insurers, and are widely accepted by leading mortgage lenders.

 

LABC Warranty has no professional association with Buildzone, which operates as an entirely separate trading entity from LABC Warranty. Buildzone is neither a partner with, nor product of, LABC Warranty.

 

In addition, latent defects insurance from LABC Warranty will cover both the cost of reconstruction, as well as the market value of the property being covered by our warranty. LABC Warranty are in fact one of the few structural warranty providers who insure on market value.

 

While LABC Warranty appreciates that having your mortgage refused was likely a frustrating and distressing experience, LABC Warranty’s latent defects insurance is widely accepted by major mortgage lenders.

 

If you would to discuss the issue further, you are more than welcome to contact LABC Warranty on 0800 183 1755, or enquiries@labcwarranty.co.uk.