Building guarantees

If your build goes off-beam, will you be covered? We compared five building guarantees to see what they offer.

Building guarantees

If you want extra protection during a home build, you’ll usually have to put your hand in your pocket and buy a building guarantee.

These guarantees are marketed as peace of mind that you’ll be covered if the build suddenly goes pear-shaped – but the cover they provide might not be as good as you think.

To see what's on offer, we compared building guarantees from Builtin, Halo, Master Build, Signature Homes and Stamford.

Build gone wrong

As they signed on the dotted line of their building contract, an Auckland couple were reassured that, should anything go wrong, there was a warranty covering them. Their bank wouldn’t agree to the mortgage on the house-and-land package without one.

But when their builder, Bella Vista Homes, went into liquidation, they discovered the cover wasn’t what they thought. They had no protections beyond the minimum provided by law. The couple estimates it might cost $150,000 more than they bargained to complete their home – and that doesn’t include their lost deposit.

Their neighbours-to-be, a young family who also signed with Bella Vista, are in the same boat. Told they’d be in their new home by Christmas, they now face the prospect of selling the property to recover the extra costs to finish the house. “It’s an absolute mess,” the young father says.

You don’t have to look far to find horror stories of home builds gone wrong. Despite efforts to clean up the industry and clamp down on cowboy operators, consumers are still largely on their own when things go off-beam.

Under cover

If you choose a New Zealand Certified Builder for your project, you’ll automatically be offered its Halo building guarantee.

The guarantee is underwritten by Lloyd’s, and your builder must apply to the insurer and get its approval for the cover. Additionally, the guarantee won’t kick in until the builder pays the premium. Ask your building company to keep you updated about this process rather than assuming it’s a sure thing.

If your guarantee requires the builder to complete an application, make sure your building company keeps you up to date on its progress.
If your guarantee requires the builder to complete an application, make sure your building company keeps you up to date on its progress.

If you use a Registered Master Builder, you’ll be offered a Master Build Guarantee (provided by an offshoot of the professional association). However, you can opt out of the loss of deposit and non-completion cover and decline to pay these additional costs.

Signature Homes’ guarantee comes with any home built by its franchises and doesn’t require the payment of an additional premium or the completion of any paperwork.

The two other guarantees don’t specify who you must choose for the work, although both Builtin and Stamford vet the builder and their business. Again, your builder must complete an application. Because of this, wait until you’ve seen official confirmation from a guarantee provider before paying the building deposit.

In 2016, Canterbury builder Gerard Thomson was fined $12,800 and ordered to pay $16,700 in reparation after telling his clients he’d organised Homefirst building guarantees for their new houses but never filed the paperwork.

Homefirst guarantees were previously sold by Builtin Insurance and New Zealand Certified Builders. However, guarantee holders were left without cover when the underwriter, CBL Insurance, was put into liquidation in February 2018.

What’s included

Deposit cover

If the building company collapses before work begins, all five schemes will refund your deposit. However, this can be limited – Master Build only guarantees to refund 10% of the total contract price, so if you’ve put down 20% you could be left out of pocket.

Non-completion

If your builder starts but doesn’t finish the job, the five schemes will cover the difference between the original builder’s quote and what another will charge to do the work – but only up to a dollar or percentage limit.

Making payments to your builder in advance of work being done could mean you can't claim under your guarantee at all.
Making payments to your builder in advance of work being done could mean you can't claim under your guarantee at all.

Builtin and Stamford’s warranties are limited to 15% of the contract price, compared with 20% for Halo and Master Build.

Signature’s guarantee covers the full cost to complete the contracted project.

With all five, you may not be covered for any payments you make to the builder in advance of work being done – and doing so could mean you can’t make a claim under the guarantee at all.

Requests for advance payments (no matter the reason) should raise a red flag, Home Owners and Buyers Association of New Zealand president John Gray says. “Do not make a payment in advance. People are often under a lot of pressure and just say yes and pay it.”

The industry standard is to pay a builder for work already completed. Guarantee providers may assess the schedule of progress payments (set amounts paid as major works, such as the foundation and framing, are completed) before approving your guarantee. If it deems the builder is requesting money ahead of work being completed, a provider may decline to cover you or request changes.

You could also risk your cover if you don’t stay up to date with progress payments. It’s a good idea to hire an independent person, such as a building surveyor, to vet the build whenever a progress payment is requested to make sure the work has been completed to the standards required, Mr Gray says.

Defects

All five schemes cover structural defects for 10 years. Halo also covers non-structural defects for a decade. Builtin, Master Build, Signature Homes and Stamford will only remedy non-structural defects discovered in the first two years.

Although the defect (such as a leaky roof) will be covered, only Halo provides cover for damage, such as water-stained curtains, resulting from the defect. However, its protection only kicks in if you don’t have other insurance, such as house and contents, in place.

Rot and fungal decay

Customers who discover rot are covered by all five guarantees if the issue stems from a defect in the build. If the problem was caused by your behaviour (for example, failing to ensure adequate ventilation), your claim will be declined.

Temporary accommodation

If you have to move out of your home during repairs, all five schemes will cover some or all of these additional costs. You’ll get up to 6 months of accommodation costs under the Builtin, Halo and Stamford guarantees or up to $10,000 under the Master Build cover. Signature Homes pays for alternative accommodation for as long as repairs take.

Excess

If you have a Signature Homes or Master Build guarantee, you won’t need to pay an excess if you make a claim. With the other 3 schemes, excesses vary. Halo’s ranges from $500 to $750 for claims for defects found more than 3 months after completion. Builtin’s excess is a standard $1000, while Stamford’s ranges between $1000 and $2500.

Transfers

If you sell, all the guarantees can be transferred to the property’s new owner, though you may need to pay a fee or file the paperwork within a set period of time.

Financial backing

Unlike car or home and contents insurers, providers of building guarantees aren’t required to be licensed, which means their financial stability doesn’t always come under the scrutiny of regulators.

Three building guarantees we reviewed are backed by a licensed insurer: Builtin, Halo and Stamford. These insurers must have a current financial strength rating, an indication of their ability to pay your claim.

They also must be registered with an independent financial disputes resolution scheme, which you can turn to if you disagree with how your claim was handled. These insurers have signed up to the industry’s Fair Insurance Code, which means (at least in principle) they must resolve claims “quickly, fairly and transparently”.

Stamford says it will pay for defects no matter who is at fault – you’re covered for work done by the architect and structural engineer as well as the builder.

Master Build’s and Signature Homes’ guarantees operate differently.

Claims on Master Build guarantees are paid by Master Build Services, a subsidiary of the Registered Master Builders Association – effectively, the builder is being backed by their colleagues. Master Build now allows guarantee holders to take a complaint to the independent disputes resolution provider FairWay Resolution for free. This change followed considerable flak about Master Build’s claim process.

Signature Homes says it relies on cash reserves and a $1 million bank bond to pay claims in case its franchisees go under. The company says it settles claims “internally and promptly”, though customers don’t have access to a free independent disputes scheme.

Legal rights

Once your home is complete, building guarantees provide little more than what you’re entitled to by law. The Building Act specifies all building work must be fit for purpose. If homeowners find defects within 12 months of completion, the builder must remedy them.

For the next nine years, the builder remains liable to fix any defects – unless they can prove the company’s not at fault. However, the major problem for consumers is enforcing their rights to have shoddy work fixed.

If you think the builder hasn’t met their legal obligations, you can take the matter to the Disputes Tribunal – but that’s only an option for disputes up to $15,000 (or $20,000 with the agreement of both parties).

Your other options are to head to court to seek compensation, or to try to resolve the matter through adjudication or arbitration processes. These avenues come at a cost and they won’t help if the building company has gone under.

You can complain about a builder to the Building Practitioners Board, which can issue a fine and suspend or cancel a licence. However, it can’t order reparation.

We’ve been calling for a government-backed building warranty scheme that would kick in if the builder failed to deliver or went belly-up. Similar schemes operate across the Tasman to provide protection for consumers like those caught out by the Bella Vista collapse.

Change needed

In most Australian states, home warranty insurance is compulsory. Builders must hold insurance for all residential builds. The absence of any requirement this side of the ditch leaves a gap in consumer protection.

The Ministry of Business, Innovation and Employment, as part of a package of reforms, has proposed requiring builders to offer a building guarantee for all residential new builds and significant alterations, unless the homeowner opts out.

Minister for Building and Construction Jenny Salesa said: “I expect this reform to create a building sector … where better quality means building it right first time and people are better protected if that doesn’t happen.”

We strongly support mandatory building guarantees and will be making a submission backing change.

Which guarantee is right for you?

Compare prices and cover offered by Builtin, Halo, Master Build, Signature Homes and Stamford.

Compare guarantees

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