Following a major review, the Competition & Markets Authority has published its final decision on the operation of the market for new home structural warranties. Geoff Wilkinson, managing director of Wilkinson Construction Consultants, examines the outcome
As I discussed in Planning & Building Control Today back in October, the Competition & Markets Authority (CMA) has published its final decision on the National House-Building Council (NHBC) and the market for new home structural warranties.
In case you haven’t been following the story, the structural warranty market has been dominated for many years by the NHBC, which currently provides policies for over 1.6m homes in the UK commonly known as Buildmark.
Until the 1990s, the NHBC was the only supplier of new home structural warranties on newly built homes and in 1989, it held over 90% of the market share. The forerunner to the CMA, known as the Monopolies & Mergers Commission, concluded that the NHBC was in a monopoly situation in the supply of new home warranty services in the UK.
The MMC found that the NHBC rules restricted the ability of a new competitor to attract housebuilders away from the NHBC as housebuilders were required to submit all their new homes to the NHBC. Therefore, if they wanted to try an alternative scheme, they had to leave the NHBC or pay a fee for both schemes.
In addition, if a housebuilder was to leave, they risked losing cover on any unsold homes registered within the NHBC scheme. As a result, the NHBC was required to give certain undertakings, which have remained in place ever since, including a requirement for the NHBC to approve competitors’ products as offering equivalent cover.
The review by the CMA was commenced in March 2017 at the request of the NHBC itself, which argued that there is now far more competition in the marketplace and that housebuilders have a wide choice of structural warranties available to them. As competition from other warranty providers has grown, they felt that restrictions on the NHBC could now be lifted.
Following the review and two consultations (see timetable), the CMA concluded that although competition in the structural warranties market has grown and housebuilders are now purchasing policies from a range of providers, the NHBC still has a very high market share compared with its competitors.
Sequence of Events
|March 2017||Review launched and initial request for evidence.|
|March to June 2017||Evidence gathering.|
|June 2017||Publish and consult on provisional decision.|
|October 2017||Publish final decision.|
|18 October to 1 November 2017||Consultation on proposed undertakings.|
|December 2017||Notice of acceptance of superseding undertakings.|
On 5 December, the CMA finally accepted new undertakings from the NHBC on structural warranties, which replace the previous legally binding assurances that were originally given in 1995.
The new revisions bring the undertakings up-to-date and protect – and encourage – growing competition in the structural warranties market.
The new undertakings will remain in force for 15 years and require that:
- NHBC will not make rules of membership that have the objective or effect of preventing or discouraging registered builders from dual sourcing from or switching to structural warranties provided by alternative providers.
- NHBC will notify the CMA of any amendments or additions to the rules of membership before or at the same time as notification of such amendments or additions is made to registered builders.
- NHBC will place an announcement on its website confirming that all registered builders are entirely free to dual source from or switch to alternative providers.
These changes also remove the rather bizarre requirement that the NHBC oversee and approve the scope and nature of warranties provided by its competitors.
Wilkinson Construction Consultants