A booming Build to Rent (BTR) sector operating within the UK’s unpredictable construction industry is making the right insurance all the more important.
Why now?
We’ve seen huge growth in BTR in the UK recently. There was £4.5billion of investment in this sector in 2023, the second highest year on record.[1] The third quarter of 2023 saw almost 60,000 BTR homes under construction and completed BTR homes increased by 11%.[2] Savills has forecast that the number of completed BTR homes could increase five-fold by 2032, making the sector worth some £170 billion, fuelled by overseas investment.[3]
A hardening sales market has led to many developers switching their strategy from selling on the open market to either retaining the property to rent themselves or selling the asset in its entirety to an investor, at which point the individual dwellings will then be offered to the rental market. Investment is fantastic of course; but it means existing building issues and changing uses need to be covered from the outset.
Latent Defects
Latent structural defects can lie undiscovered for years after practical completion, so insurance around them can be complicated.
They can range from insufficient or defective foundations to load bearing or external walls. All of which could lead to collapse or threat of imminent collapse. They can also cover defective roofing and defective doors or windows, which could easily lead to the dreaded ingress of water.
Having no insurance for them can be catastrophic. There’s also the financial impact of losing rent or requiring alternative accommodation if a latent defect renders the building or part of the building unusable while remediations are made.
Latent Defects Insurance (LDI)
Having a solid LDI policy in place makes the asset safer and much more attractive to investors. It’s important to have some in-built flexibility should the developer sell the asset (in part or in whole), retain it, refinance it & operate it, or switch tactics again and revert to selling individual units on the open market. That’s why it’s critical to work with insurance providers and brokers that understand LDI and enable the developer to do what they need to do.
Until more recent times LDI may have been overlooked.
Whilst residential mortgage lenders required a suitable Building Warranty to be in place (before even making a mortgage offer in principle), units not being sold on the open market may not have been seen as needing such cover.
But this recent boom in BTR means that it is not just about pleasing a mortgage broker anymore. It’s about protecting the developer, attracting the investor and ensuring all eventualities are covered, whatever rental or sales approach is taken.
Get in touch with Antoni (Head of LDI at Bridge) to discuss your project and to find out the most suitable course of action.
[1] https://www.savills.co.uk/research_articles/229130/356373-0
[2] https://www.savills.co.uk/research_articles/229130/353636-0
[3] https://bpf.org.uk/media/press-releases/build-to-rent-5
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