The CML rule is set out in the next edition of its lenders' handbook, which comes into force in April. It sounds to the uninitiated like a statement of the obvious, but those in the inner circles of the housebuilding industry know that companies are rather prone to handing over houses before they are finished. The urgency is not generated by buyers' impatience to move in, but by chief executives' need to make a good impression on shareholders. Some companies hand over about 10% of their annual build in the last weeks of the financial year.
From April, however, every new home bought with a mortgage will be subject to the rule (although self-build homes are exempt). The certainty that a home is complete will come from the final inspection and cover note provided for by warranty providers. Principal warranty provider, the NHBC, has introduced a checking system for final inspections and taken on 12 more inspectors to ensure that it can enforce the CML rule.
Rival warranty provider Zurich Building Guarantees, which claims a 20% share of the new homes market, says it takes such a rigorous approach to final inspection already that it has no need to make any changes to its procedures. "We have always made it clear to housebuilders that we will carry out a final inspection and see that a house is fit for purpose. We have struck housebuilders off our register for handing over incomplete homes in the past," says Helena Sokolowski, manager with Zurich. "We have always felt a final inspection was the right thing to do."
But for the remaining 80% of the market, the new rule signals a big change. "If this had gone live any earlier it could have been a disaster," says Neil Jefferson, head of registration at the NHBC.
The top 50 housebuilders, with their production line delivery and the fixed targets of public company status, are reckoned to be facing the biggest challenge.
"They have got to get more realistic with their build programme," says Jefferson. "They have to get their internal procedures in place and be realistic and ensure that the cover note gets into the right hands quickly."
Under the NHBC's final inspection procedure, homes are rated as a pass, a pass subject to certain items being rectified (green rating), or a fail (red rating). The NHBC has so far identified about 15,000 items on site that could be classed as pass or fail (see photos above, marked red and green). The toughest judgments are likely to have to be made on apartment schemes, where developers commonly move buyers into the base of the building as the builders continue to work on the top. "Housebuilders will have to think about common parts and car parks," warns Jefferson.
Where a red rating is given, the NHBC sends a letter to the managing director concerned listing what's wrong. The property then has to be reinspected, and found satisfactory, before a cover note can be issued.
The NHBC has been operating its system on a trial basis since October, crucially covering the calendar year-end, which is also financial year-end for many housebuilders. It proved a testing time for some, says Jefferson. "There is some concern that properties that failed the first inspection often needed more than one repeat inspection. Where this arises, it clearly has an impact on the NHBC's inspection resources and, come April, could ultimately lead to a delay in the sale."
That is not the only source of delay. Housebuilders are asking for final inspections to be carried out in the day or two leading up to legal completion. That is proving to be inadequate, says Jefferson. "One of the most significant adjustments arising from the CML initiative is the need for builders to lengthen this period to allow the mortgage lender to process the Certificate of Title and mortgage funds request. This will usually add at least five working days." Firms are also failing to provide essential design information early enough, the NHBC has found.
Housebuilders know that they have to change their ways. For Antler Homes the April introduction of the new rule could not be worse timing, as its year end follows in June. "We will allow for it when we are budgeting for 2004," says Geoff Potton, chief executive of the company. "If we were a big company, then the pressure would be on to deliver units. But for us if a home is not ready, it's not the end of the world."
"We've worked with the NHBC on trialling this and had our own new system in place for most of last year, to make sure that we have all the procedures," says David Bryant, main board director of Persimmon Homes. Persimmon's system involves sales and construction staff signing a property off before calling in the NHBC.
"The new rule can be difficult to get to work on site," says Bryant. "A plumber may think that because a customer is not moving in till the end of the month, they can finish off a job next week. We can't have any trade thinking they can come back next week any more."