Exploring the suggested role of the New Homes Ombudsman

In October 2018, the government announced that it would appoint a New Homes Ombudsman (NHO) to support homebuyers facing problems with their newly built home. In July 2019 , the Ministry of Housing, Communities and Local Government launched a consultation process seeking views on delivery of the service.

It is also considering whether a code of practice should be created to give a clear framework for both builders and the NHO.

Why a New Homes Ombudsman is needed

The National New Home Consumer Satisfaction Survey, published in March 2019, found that 99 percent of those who bought a new home in 2017/18 reported a defect or snag to the builder, up from 91 percent in 2011/12. The number of buyers who would not recommend their house builder to a friend was 13 percent in 2017/18, up from 9 percent in 2011/12.

Shelter and YouGov found that 51 percent of new home owners have reported major problems with their properties including construction issues, lack of finishing and utility faults.

As well as problems with the build, consumers are also struggling with misleading marketing materials, lack of pre-purchase information and limited transparency in respect of costs and referral fees.

Most buyers would welcome access to their new property before completion, for themselves as well as their own independent surveyor or building consultant. Currently this is often refused.

With the government wanting builders to supply up to 300,000 new homes each year by the mid-2020s, an NHO will encourage high standards and provide recourse for buyers who are dissatisfied.

The government understands that house building is a complex process, involving many different trades and skills and that there may be flaws in newly constructed properties, but it wants to reach the point where all builders deal with problems quickly and treat buyers fairly.

Along with the NHO, a new consumer code has been suggested. While there are a number of codes already in existence, they currently have different standards and criteria, meaning consumers struggle to pin builders down when a problem arises. Complainants may have to deal with different consumer codes and warranty providers as well as the building company to try and have problems rectified.

When purchasers are uncertain who to turn to for redress when defects are not dealt with, some builders are able to continue providing homes of less than adequate quality.

Builders who are expelled from one code are free to join another by using a different warranty firm. This means they do not have to raise their standards. By providing a single point of access for the consumer, bringing a complaint will be simpler and builders will not be able to change to a different system to avoid ongoing sanctions.

The proposed role of a New Homes Ombudsman

The government’s consultation paper, ‘Redress for Purchasers of New Build Homes and the New Homes Ombudsman’, suggests that the initial role of an NHO would be to try and resolve disputes informally. The process is then likely to move on to try and bring complaints to a conclusion by way of recommendations for redress and possible financial awards to the consumer.

The NHO will not have the power to impose fines or instruct developers in the way that they work, however they could be given the power to expel or suspend them from the scheme, meaning they would no longer have the right to build and sell properties.

The government will set an upper limit to the amount that can be asked for by way of financial award, so the most serious claims will still need to go to court for settlement if the sum sought is higher than the NHO’s limit.

In cases where the NHO will not be making a binding decision, there is the option for it to make a recommendation to the developer, for example to buy back a defective property, to vary an unfair lease or to reduce onerous service charges.

Where remedial action is proposed, the NHO could be given the power to impose time limits on completion of the work.

A code of practice

A single, industry-wide code of practice for new build would ensure that builders understand what is expected of them and give the NHO a standard to which they can refer when assessing complaints. 

A code would cover areas including complaints procedures, ethics and conduct, particularly in respect of advertising and provision of clear pre-purchase information, transparency with regard to reservation fees, standards in respect of handover of the property, aftersales service for two years following completion, quality of the build, remedy of defects within a reasonable time frame, customer service standards and provision of a warranty. 

How a New Homes Ombudsman will benefit builders

The proposed new industry regulation is good news for builders who offer higher quality build standards and service than competitors. As those offering a substandard product are penalised and even prevented from selling, those who pay attention to detail and deal quickly and efficiently with snags will rise to the top.

The future looks likely to be more transparent for buyers, with publication of complaints figures, the names of those failing their customers and annual summary reports. The government believes that this openness will improve standards across the industry.  

The New Homes Ombudsman and conveyancers

Conveyancers are likely to notice some differences once the NHO is in place, with possible options to delay completion until a buyer has had a satisfactory survey as well as provision of more information in respect of warranty provisions, leasehold charges and information on future nearby developments.

By ensuring they have adequate case management systems in place, it should be routine to accommodate the extra work as a standard part of a new build transaction once the NHO and code of practice are in place and it is clear what is expected of a developer.

Summary

In April 2019, James Brokenshire, Housing Minister at the time, said it was the government’s intention to introduce the NHO in shadow form before its formal launch. This will give builders and the NHO the opportunity to see how the scheme will work and make any adjustments necessary before a national roll-out.

The Minister also emphasised the government’s wish for high quality, well-designed homes that are beautiful, stand the test of time and provide what communities want and need.

The government’s vision of the future is one where standards are higher, developers offering poor quality are forced to improve or leave the industry and the customer can be assured of prompt and satisfactory resolution of problems. Builders who rise to meet the new standards should find their efforts rewarded as they spend less time resolving post-completion difficulties and benefit from good ratings and recommendations.