One of the most unloved pieces of housing market legislation to be proposed in recent years has entered the final straight with the launch of the trial period for Home Information Packs.
Incredibly, even the pilot scheme has been dogged by controversy and criticised for being too limited a sample, with just six areas involved – Bath, Cambridge, Huddersfield, Newcastle, Nottingham and Southampton. Critics argue that this is not representative enough to adequately illustrate how the scheme will be rolled out to the country in just seven months’ time.
From June 1 2007 it will be compulsory for sellers to provide a HIP to potential buyers, including information such as the terms of sale, title deeds, local searches, warranties and an Energy Performance Certificate. But HIPs have been surrounded by controversy.
The reason so many people get worked up about HIPs is that the repercussions – if the packs are the disaster that many predict they will be – could be huge.
Many fear that the introduction of the packs will distort the housing market with a glut of properties coming onto the market next spring to beat the costs and time involved in preparing a HIP, followed by a dearth of houses coming to the market after the June launch date.
Properties placed on the market prior to 1 June do not need a HIP until November 1 2007 so if the property is sold by that date the seller will have saved themselves money.
This glut followed by famine will cause a spike in the market with sellers needing to consider the timing of a sale or purchase accordingly. Given that there is already low turnover in the housing market with people moving less often, anything that reduces supply further is unwelcome.
The Home Condition Report – a sort of mini-survey – has sparked other concerns. Originally, the pack was supposed to include a mandatory HCR but on July 20 this year the government announced that this would no longer be compulsory. Lenders had expressed concerns that they wouldn’t be ready for a HIP rollout with a mandatory HCR included.
Sellers can still pay for and include an HCR if they want but they won’t be forced to – at least initially. In dropping the HCR the government saw sense at last, realising there was no way there would be enough home inspectors trained and qualified in time to produce the reports.
The Association of Mortgage Intermediaries estimates that a HIP without an HCR will cost between £200 and £400. Prior to the HCR changes the packs were estimated by the government to cost between £600 and £700 plus VAT.
But some sellers may still opt for HCRs even if they aren’t mandatory. The government believes the advantage is clear – a seller with a property in good condition could opt for a HCR on the premise that although it may cost from £500 up to several thousand pounds for a big old property, being able to offer a house with such a report may provide a market advantage over a house which doesn’t have an HCR. But in reality most buyers will opt for the house that most attracts them irrespective of whether there is a HCR involved.
Plans to make HCRs compulsory haven’t quite been abandoned. Instead, the government has put them on hold, intending to introduce them on a market-led basis, once further testing on the costs and impact of introducing such reports has been carried out. The first test will come during the HIP pilot as the HCR will be rolled out as part of the trial in the next few weeks.
According to Christopher Lacy, director at property consultant Savills, the government’s position is that if there is not sufficient uptake of HCRs it will consider making them mandatory. The problem is that uptake is expected to be low, which is hardly an incentive for those who are considering training as home inspectors to invest the time and expense in training for such a qualification.
“There is still some doubt over the future of HCRs and indeed HIPs as a whole,” says Lacy.
Indeed, the government’s U-turn on the mandatory HCR has done nothing for HIPs’ reputation. Those who have spent their savings training to become home inspectors are understandably angry.
These developments have in-evitably led many to believe that the HIP itself will be abandoned before it is launched, going the same way as the government’s plan to allow residential property to be included in self-invested personal pensions. But as things stand, sellers will still need to have a HIP available when they market their property from June 1 next year.
The government hopes that HIPs will speed up the house buying process, reducing the £350m wasted each year on property sales that are agreed but fall through.
But it has been guilty of failing to take time to understand the market, hoping that lenders would be prepared to provide mortgages on the basis of a HIP without the need for a separate formal mortgage valuation. The Council of Mortgage Lenders rightly insisted that its members would not be prepared to lend without a proper valuation for the majority of properties.
Ministers still hope the scheme will speed up the home buying process but without the HCR a big part of the government’s hoped for savings in time and expense have been thwarted.
Some people have called for the HCR to include a valuation figure but that would kill the ability of a person to get the best price they can for their most valuable asset. Sensibly, the government has seen the light on this.
Although HIPs are still on the government’s agenda, not everyone agrees that they should go ahead. Lacy is just one critic who argues that the government should scrap HIPs.
“Among the many reasons for this is that the means of enforcing the procedures are utterly inadequate and will lead to much evasion of the requirements,’ he says.
“Hips were never the right solution to the problem.”
Lacy is also concerned about the way the government is going about introducing the Energy Performance Certificate in its wish to comply with European Union legislation. He argues that this could be achieved by making it a requirement that before any sale can be registered with the Land Registry there must be an EPC in place rather than hold up marketing by insisting that this is in place beforehand. Otherwise, this will slow the market rather than speed things up.
One of the main fears is that HIPs will be used as marketing tools. Although advertising and marketing information is banned from the packs it is hard to see how this will be enforced.
Such information can be handed across in close proximity to a pack but must be separated and clearly distinguished from the pack or pack document. But it is not difficult to envisage that a first-time buyer in particular, with no experience of the market, may find themselves thinking that the marketing material they are handed at the same time is part of the pack and that they are obliged to go with the lender, broker or solicitor that is being advertised.
If what we are after is something that will speed up the home buying process the government may be looking in the wrong place for the answer. The launch of automated valuation models and point-of-sale technology will go far further in speeding up the house buying process. And if these things can be done electronically, what about the rest of the process? E-conveyancing is the obvious next move. This will solve the main delay in house purchases.
In some ways, HIPs make sense. Under the present house buying system a lot of information needed by a buyer only becomes available once an offer has been accepted. Any problems may only come to light once buyers and sellers have incurred costs, which can hold up exchange of contracts and even lead to the sale collapsing.
But if the government decides to continue with HIPs in their current form there is one major issue it must address and that is to allow first-day marketing, instead of facing a potential 14-day delay while a pack is prepared.
Once a HIP has been ordered it is hugely disadvantageous to vendors, buyers and others up and down the chain for the imminent availability of a property can’t be made known. This defeats one of the original objectives of the packs – speeding up the house buying process.
Whatever your view on the packs, the government will be waging a publicity campaign to promote HIPs and HCRs and the condition of properties is something buyers will be looking at more closely.
So next year there is a good case to be made for vendors spending the months before they put their property on the market sprucing up any defects it has – which has always been good practice anyhow.
Melanie Bien is associate director at Savills Private Finance