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House builders to set up code of conduct following OFT inquiry

House builders are to set up a code of conduct and a redress scheme for dissatisfied customers following an industry inquiry by the competition watchdog.

The Office of Fair Trading has today announced its market study into housebuilders found that while the sector was "broadly competitive", many homebuyers experienced faults with their new property or delays moving in.

It said that while many of these faults were quickly fixed, some homeowners did suffer "significant detriment, distress and inconvenience" if there were major faults or many problems with their new home, particularly if these related to the plumbing or heating.

It also found that the sales process for new homes was "not without problems", saying it was particularly concerned about reservation fees and the clarity of information provided to homebuyers, while it thought some of the terms and conditions in contracts were potentially unfair.

As a result of the findings, representatives from across the sector, including the Home Builders Federation, National House Building Council and the Council of Mortgage Lenders, have agreed to create a code of conduct and redress scheme for consumers, which should be up and running by March 2010.

The new code will offer clear guidelines to ensure that consumers can get problems fixed quickly and with minimum disruption.

But the OFT warned that if the industry failed to make adequate progress or deliver an effective solution, it would recommend further intervention through a statutory redress mechanism, that would be funded through a levy on the industry.

Overall the OFT found little evidence of competition problems with the delivery of new homes in the UK.

It said the barriers to entering the market were low, and prices were set through homebuilders competing for sales against each other.

It added that there was no evidence that individual housebuilders had the market power to restrict supply in order to inflate prices, or that they hoarded land.

Instead it said landbanking reflected the need for firms to have a pipeline of land at different stages in the development process.

It added that apart from housebuilding firms, the public sector appeared to have the largest landbank.

OFT chief executive John Fingleton said: "We have found the home-building market to be generally competitive, with no evidence that individual homebuilders have the ability to restrict supply in order to inflate prices or to hoard land for anti-competitive reasons.

"However, we have concluded that homebuyers need more protection when buying a new home and we have worked hard with the industry to help it develop a new approach to self-regulation that will improve consumer protection."

The market study was launched in June last year as a result of concerns about a lack of competition within the housebuilding industry, and in response to the 2004 Barker Review on housing supply, which recommended that the industry should develop a code of conduct and increases levels of customer satisfaction.

Around 194,000 new homes were built in the UK during 2007, amounting to sales of £45 billion.

But there has been a sharp decline in new build levels this year due to falling house prices and the problems caused by the credit crunch.

Code Steering Group chairman Rod MacEachrane said: "This initiative is part of the continuing proactive stance already taken by many in the house-building industry to address customer satisfaction and recognises that further improvement in this area remains one of the key challenges we face."

Home Builders Federation executive chairman Stewart Baseley
said: "After months of probing, the OFT's report is a real boost for the industry.

"It is a credit to home builders that following such an in-depth examination they have received such a clean bill of health."

National House Building Council chief executive Imtiaz Farookhi said: "I am pleased that after an intensive year-long study, the OFT report concludes that the UK new home warranty system is robust in protecting consumers and that 90 per cent of homeowners were found to be satisfied with the construction quality of their new home."

But Gillian Charlesworth, director of external affairs at the Royal Institution of Chartered Surveyors, said: "While there is no evidence that housebuilders are hoarding land for anti-competitive reasons, it is clear that the system allows the practice to take place.

"Unless there is a serious attempt to reform the planning system and allow smaller firms greater opportunities, house building levels will continue to disappoint and demand, which cannot be satisfied, will continue to escalate."