NHBC – Written evidence (MMC0006)

About NHBC

       NHBC is the UK’s largest new home warranty and insurance provider, covering 70-80% of newly-built homes each year in the UK and protecting approximately 1.4 million policyholders.

       NHBC is an independent, non-profit distributing organisation with no shareholders, reinvesting profits made back into its core purpose to raise standards in house building.

       We do not build homes, and we are not directly responsible for the quality of new homes.

       NHBC Accepts is our comprehensive review service for innovative systems. It is a route for acceptance of MMC systems for use in homes covered by all NHBC warranty and insurance policies.

       NHBC delivers approximately 20,000 delegate days of training to the house building industry per year, as well as offering construction site supervisor and bricklaying apprenticeships.

       The NHBC Foundation regularly produces high quality research to help the industry and policymakers meet the challenges of the day, and practical guidance to help house builders deliver high quality new homes.

Inquiry questions

1. From the perspective of a warranty provider, how are modern methods of construction (MMC) different from traditional buildings?

       There are several ways that MMC homes are different to traditionally built homes, such as:

• Structural components: many components and sub-components that comprise an MMC home can be fabricated off-site in a controlled environment such as a factory.
• Assessment methods: the nature of assessment for MMC buildings is bespoke to the system being deployed. The risks involved during the construction, occupation and maintenance of such buildings are therefore inherently different compared to traditionally built buildings.
• Risk management: the inspection process differs from traditional construction, as many of the components of an MMC house are delivered some distance away from where they are erected. With this in mind, we not only inspect the home on site, but also look at the quality processes of manufacturers and construction partners.
• Durability: the long-term performance of components will be specific to the manufacturer, the materials they have chosen to use and how they’ve chosen to integrate them into the building. This results in each building system being unique, requiring a bespoke risk management plan to ensure it meets NHBC Technical Requirements.

2. What products do you offer for MMC-delivered buildings, including both homes and non-residential buildings? 

       Buildmark is our warranty product for newly-built or newly-converted homes for private sale. Buildmark provides protection for buyers' deposits between exchange and completion, a two year builder warranty period, backed by the NHBC resolution service and guarantee; and then an eight year insurance policy for physical damage to the home caused by a failure to build to the NHBC requirements.

       Buildmark Choice is our warranty product for landlords and long leaseholders of newly-built or newly-converted homes for social rental, private rental or shared ownership. Additional policy features include the option to extend cover for an additional two years, taking cover up to 12 years.

       Buildmark Connect is our warranty product for commercial premises that are part of a mixed-use development.

       NHBC Building Control Services (BCS) is an Approved Inspector, in operation since 1985, and is the largest single provider of Building Control in England and Wales. BCS undertake design checking and site inspections to assist the person carrying out the work in achieving their obligations of complying with the Building Regulations.

       NHBC Accepts is our comprehensive review service for innovative systems. It is a   route for acceptance of these systems for use in homes covered by NHBC warranty and insurance policies. We use our scale, expertise and knowledge of house building to work with manufacturers to provide developers, investors, lenders and home buyers with the confidence that innovative systems can meet the same high standards of quality and durability as traditionally-built homes.

       Construction Quality Services: We offer a range of construction quality services such as Construction Quality Reviews (CQR); an independent site-based review of the quality of construction, undertaken by an NHBC specialist. Our experience to date confirms that the root cause of many issues on site can be traced back to factors such as design, planning, materials or procurement.

3. What are the risks related to MMC? Do different categories of MMC come with greater risks than others and how is this assessed?

       Systemic defects: with MMC homes being manufactured at scale, there is a risk of defects during the production stage proliferating across a large volume of MMC homes.

       Failure to provide performance expectations: a new build home is designed to have a life span of, at least, 60 years, regardless of whether it was built using traditional or MMC. However, there is potential for some materials not being able to be certified to a known standard, due to an absence of a known standard against which to test the product, and therefore failing to provide adequate durability. For example, lightweight external cladding systems have a lifespan of 25 years and will have to be taken off and reclad, resulting in significant costs and disruption for homeowners.

       Building Regulation risks: in many cases, homes being built using MMC are not subject to guidance from Approved Documents as they are not applicable. As a result, a degree of professional skill and judgement is being used by building control bodies to assess new homes.

       Repairability: a lack of long-term data regarding repairability costs makes underwriting homes built with MMC systems and components difficult to price.

4. What would make you more confident in providing a warranty for an MMC-delivered building?  

       Data: in particular, more data relating to claims would build confidence in providing warranty for MMC homes. Data stretching back decades already exists for traditionally built homes, thus the nature and development pattern of claims is generally predictable. However, this does not exist for MMC homes, which adds complexity to pricing warranty.

       Commercial underwriting: NHBC carries out due diligence on builders that want to use MMC, assessing their longevity to make a judgement about whether they will be around to fix claims during the warranty period. Similar commercial assessments of manufacturers and installers will help to de-risk construction. If all parties in the construction value chain are adequately financed to honour their commitments, pre and post construction, there should be a lower risk of default.

       Insurance-backed warranties and guarantees: given the lack of long-term data on the performance of MMC components, NHBC believes that insurance-backed warranties and guarantees would mitigate risk and boost confidence in MMC. This would entail having products for particular MMC components which provide cover in the event of design, materials, or workmanship failure.

5. The lack of long-term data on the performance of MMC has been raised as a major challenge to understanding the risks of MMC – how much and what types of data would you need? 

       Data insights on claims profile: claims data covering the nature, and development pattern (e.g. when claims occur), of claims for MMC homes and/or components. For example, are you more or less likely to have foundation issues in an MMC home compared to a traditionally built home? To mitigate the risk of the lack of data, NHBC has a dedicated team that focuses on assessing, visiting MMC factories, and conducting rigorous checks on-site.

       Customer care data: currently, when a policyholder makes a claim in the first two years of their warranty, the builder is liable to put the issue right. NHBC may not have access to records covering these items, but if we did it would make an important contribution to the claims profile data described above. A consolidated repository for all MMC claims and issues, which all relevant parties share data to, would create a rounded picture of what goes wrong and how it gets fixed.

6. How useful was the MHCLG working group on MMC in identifying and tackling the issues that need to be addressed for warranty and insurance providers to feel more confident in MMC? 

       The MHCLG working group on MMC developed a standardised framework for categorising MMC which NHBC has found useful and makes use of. Looking ahead, it would be helpful for the framework to be revisited to ensure it is reflective of developments since its introduction. Doing so would ensure that the framework is underpinned by the latest MMC technologies that have come to market since the categorisation framework was first introduced.

November 2023