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Hidden threat to brokers in HIPs

HIPs will shift the emphasis toward sellers being more transparent about their properties at an early stage and this could contain the seeds of a threat to brokers, says Richard Griffiths

Everyone is talking about Home Information Packs. At the recent Mortgage Summit in Jerez, I was amazed how many speakers mentioned the subject.

My fellow commentators Frank Eve and Simon Biddle have written articles about it. Eddie Goldsmith of Goldsmith Williams solicitors even began an article on HIPs by saying: “I don’t know about you but I am becoming just a tad sick of all the press at the moment concerning HIPs.”

Brokers are sending letters about HIPs to mortgage magazines in increasing numbers. The Association of Mortgage Intermediaries has formed a working party to consider the impact of HIPs on the mortgage broking market and the fear of losing business to estate agents. AMI director Chris Cummings has described HIPs as “one of the biggest risks in the industry” and says the trade body has formed a group to discuss the potential threats, as well as the opportunities, presented by the introduction of HIPs.

IFA firms such as Berkeley Berry Birch and Thinc-Destini have already announced solutions for their members.

Companies are being set up left, right and centre. See the box for a mere sample of those already registered at Companies House. There are in fact 39 companies with Home Information Packs in their names and yet more with HIPs or Home Packs. The location of the companies are mentioned only to assure you they have not all been set up by the same enterprising soul looking to corner the market in registered HIPs names.

Note the dates of incorporation – many have been set up this year. HIPS UK was only incorporated on September 21, a couple of weeks ago.

Congratulations must go to the founder of Home Information Pack who had the foresight to register the name in April 2000. I only hope it is still alive and well and not too fatigued by the log wait.

Even more impressive, Home-Pac was set up in February 1983, more than 22 years ago. It could hardly have been in connection with HIPS, but as the company is now shown at Companies House as “in liquidation”, perhaps a budding entrepreneur will grab the name when it becomes available.

I won’t even touch on domain names, but I do hear that has been nabbed by the Spicerhaart estate agency chain.

And this is for a market that will not emerge until 2007. While the legislation making HIPs compulsory under law was embodied in the Housing Act 2004, a series of enabling bills have yet to be effected. But the government has said categorically that HIPs will be introduced in early 2007, although the exact start date has yet to be announced.

So what are HIPs? I can think of no better introduction than that from Danny Davies of Salans solicitors who says: “HIPs are a government initiative and were conceived by the Labour Party to allow it to fulfil its manifesto commitment to improving the existing home buying process and respond better to the needs of the consumer. It was felt that, under the current process, far too much of the information that buyers require only became available after an offer had been made and accepted.

This could cause serious legal and financial problems if the property turned out to have a serious flaw with its construction or a problem with legal title, which required the offer to be renegotiated or abandoned altogether.

Another side effect of this ineffective system is that due to delays caused by these problems, gazumping could also occur.

The government believes that HIPs will make the process more efficient, transparent and consumer-friendly in that the emphasis is shifting to obligate the vendor to be more transparent about their property at a much earlier stage and thereby removing some of the purchaser risk with the associated abortive costs.”

The HIP consists of two elements, a Home Condition Report and a Legal Condition Report, with the former containing an energy efficiency assessment for the property.

Only qualified and licensed home inspectors can prepare the HCR, while the LCR will require access of the Land Registry for proof of title and a local authority search. This means a HIP cannot be prepared by the vendors themselves, only by professional people.

The estate agent selling the property will make the HIP available, either electronically or in printed form, to prospective purchasers of the property. This all happens at the time the property is put up for sale. It may be weeks or months before an offer to purchase is made and accepted. It is at this latter stage that mortgage brokers normally get involved and lenders even later when the mortgage applications are submitted.

So what’s changed? You may well ask. I think the answer lies in Davies’ comment above about “the emphasis shifting … at a much earlier stage”.

You don’t have to be Brain of Britain to realise the potential for including within the HIP a ‘mortgage certificate’, a household insurance illustration or a quotation for the supply of gas, water and electricity. Even though the profile of the purchaser is not yet known, the details of the property certainly are.

I think it is because of this potential that the emphasis will shift to an earlier stage, and Cummings may be right about the threat to mortgage brokers.

But who knows? I finish with another 53 words from Goldsmith who says: “I have been around the block long enough to know that nothing works out the way you plan it and there is a lot of positioning and posturing going on while no-one quite knows how it is all going to pan out in the future.”

Come on Eddie, go for a 1,000 word sentence and it will save me writing an article.


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