Brokers must face up to HIPs challenge

In last week\'s column, I explained what Home Information Packs are. This week I want to explain why they are being launched, when this will happen and how much they will cost.

The government has decided to launch HIPs because it believes they will make the house buying process quicker, easier and less frustrating for home owners, particularly first-time buyers. The government says 350m is wasted each year on property sales that are agreed but then collapse. It thinks HIPS will help put an end to gazumping and reduce ownership costs for first-time buyers.

A government study has estimated that failed property sales cost about 900, of which 200 is incurred by the seller. The buyer’s wasted 700 is accounted for by conveyancing fees, survey and valuation costs (these costs do not factor in valuable time wasted by mortgage brokers and estate agents). In many instances, the reason for the sale aborting is because of problems with the property itself. It is thought that if information is made available about the property before an offer is made, many collapsed sales will be avoided.

The Office of the Deputy Prime Minister recently announced that the date for the compulsory implementation of HIPs will be June 1 2007. The Council of Mortgage Lenders had lobbied to push this date back to later in the year, not only to give more time for necessary preparations to take place, but also to avoid unnecessary disruption during the busy spring/summer property sales period. Unfortunately, the CML’s pleas fell on deaf ears. A pilot dry run will take place during the summer of 2006 to help iron out last-minute issues before 2007’s full launch.

The cost of producing a HIP is estimated to be between 500 and 1,200, although the government estimate is 635. In theory, the seller will have to pay for the pack upfront, but it is believed schemes will be introduced that defer payment until the property has been sold. It is also thought that lenders, estate agents and others will introduce subsidised schemes. These will be a bit like free valuations, in which the cost to the seller is vastly reduced, even eliminated altogether if they also buy a package of other services from the HIP’s provider.

Herein lies the source of a potential threat for mortgage brokers. After June 2007, estate agents will have a real incentive to sell an integrated package, which includes not only a house selling service and a HIP, but also financial services such as mortgages and associated insurances. The challenge for brokers is to find ways to work with local estate agents to provide this integrated package together, rather than let them undermine their business.

So we know what HIPs are. In the new year, I’ll look at some of the key issues they raise for intermediaries.