Home owners advised to research builders after insurer removes element of its 10-year guarantee cover

Monday, 2 September 2019

We've all heard the stories about home builds that broke the bank, but does it have to be this way?

Home owners are being urged to carry out background checks on builders before signing contracts after one insurer took steps to cut its losses.

Halo Builders' 10 Year Residential Guarantee Insurance, offered by New Zealand Certified Builders (NZCB) and underwritten by Lloyd's of London, has removed protection for policy holders if their builder goes bust while their home is under construction.

NZCB chief executive Grant Florence said five events could trigger the guarantee, but only one had been removed.

'It's the one that relates to the insolvency or fraudulent actions of the builder,' Florence said.

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Grant Florence, chief executive of New Zealand Certified Builders. (file photo)

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'If somebody takes out a Halo guarantee and the builder goes bust, basically the home owner is not covered.'

Florence said the change had not been made due to the number of builders going bust, but was driven by Lloyd's to bring the policy into line with others around the world.

Last year, Fowler Homes Taranaki went into liquidation after the owner was involved in a major police sting targeting the sale and supply of methamphetamine.

Millions to billions has been lost with builders going bust in the past 10 years, Mike Pero says. (File photo)

Seven homes under construction by the company were completed under the Master Builders 10-year Guarantee, but Florence confirmed those home owners would not have been covered by the new Halo policy.

However, Florence said he believed the Halo guarantee was still the best on offer.

He said asking potential clients to make their own assessment of a builder's financial stability was not crystal ball gazing.

Registered Master Builders Association NZ chief executive David Kelly. (file photo)

'It's around just asking other people who have had house built by this person and making a few inquiries about them.'

His comments were echoed by the head of one of the country's biggest mortgage brokers, who said millions of dollars have been lost to 'incompetent business people calling themselves builders'.

Mike Pero, of Mike Pero Real Estate, said insurance companies were aware they were going to lose with some builders.

'Millions to billions of dollars have been lost over the past ten years,' Pero said.

'Some (builders)are outright crooks.'

Pero suggested potential home builders should make inquiries, including independent reference checks, trade checks and credit checks, before hiring a contractor as many requested a huge payment up front.

'Make the phone calls yourself and ask about punctuality, quality of workmanship, issues, disputes and don't be afraid to drill down.

'Many builders use your money to pay their overdue suppliers account. That money needs to be held in a trust account or escrow. You become an unsecured creditor the minute they bank your deposit.'

Registered Master Builders offers its own 10 year guarantee, which offers protection for loss of deposit and completion of homes if a builder went broke, and has no plans to change this, chief executive David Kelly said.

'When it happens for the home owner it's devastating.

'Our experience is that's the most difficult thing and the most important cover that we provide.'