The June 1 target date for the introduction of Home Information Packs is now just four and a half months away.
Sceptics can’t rely on the controversial initiative being scrapped at this late stage, which means the time for sniping and griping has passed. HIPs pose a major challenge to brokers and if you haven’t started planning how to respond, it’s time to get a move on.
Bath, Cambridge, Southampton, Huddersfield, Northampton and Newcastle upon Tyne are already getting their first taste of HIPs through the rollout programme launched by the Association of Home Information Pack Providers last November.
The government is using the same six areas for its own HIP trials, which it is backing with £4m of public money.
Mike Ockenden, director-general of AHIPP, says its programme involves a phased implementation of the packs to ensure the industry is prepared to handle demand when they become mandatory.
“By launching ahead of the June deadline we aim to avoid a big bang implementation and induce a smoother and more efficient transition to using the packs,” he says.
AHIPP members report that more than 300 packs have been commissioned so far, most including voluntary Home Condition Reports, although at this point sellers don’t have to pay for either the packs or the HCRs.
The Surveyors and Valuers Accreditation Certification Scheme has also formally registered more than 70 qualified home inspectors in the first month of its scheme. They stand ready to produce both HCRs and Energy Performance Certificates as part of HIPs.
Ockenden claims results of the programme have been encouraging, knocking 10 days off the average house buying transaction time.
“Consumers are seeing the benefits of packs at first hand and telling us how much they like them,” he says.
He is even optimistic that house sellers will voluntarily pay for HCRs after June.
“Once they appreciate that HCRs will make their transactions faster and more secure, many will see their value,” he adds.
The programme is now rolling out in a further 12 locations – a section of the M4 corridor that includes Reading, Basingstoke and Wokingham, plus Manchester, Cardiff, Coventry, Hereford and the Marches, Bristol, Leicester, Chelmsford, Nottingham, Plymouth, Liverpool and the Thames corridor.
AHIPP has also launched its Code of Practice setting out the minimum standards that all HIP providers must meet. The public can check whether a provider subscribes to the code by visiting the Property Code Compliance Board website which can be found at www.propertycodes.org.uk.
AHIPP is feeling bullish as HIPs move from being a widely derided poss-ibility to a grudgingly accepted likelihood, but others are sceptical about any results that emerge from either its rollout programme or the government’s area trials because both organisations have a vested interest in making the scheme work.
Miles Shipside, commercial director at estate agency Rightmove, which ditched its plans to offer HIPs after the government scrapped mandatory HCRs, says many estate agents are sceptical about any trial results that are published.
“HIPs are being offered free of charge to vendors in the selected trial areas and this fails to reflect the market reality,” he says. “If HIPs are launched as planned, the voluntary uptake of HCRs will be negligible.”
Jeff Knight, head of marketing services at GMAC-RFC, says a paid-for dry run was urgently needed given the damage that HIPs could wreak in the property market. He doubts whether the watered-down HIPs will ever become reality. And if they do, he doubts they will do any good.
Ray Boulger, senior technical manager at John Charcol, says neither AHIPP nor the Department for Communities and Local Government have set any parameters by which results can be judged.
“They have probably already written the press release claiming the trial has been a success. It will be impossible for outsiders to refute this,” he says.
He adds that feedback from sellers will be distorted by the fact that they are getting their packs free of charge – they might be less positive if they had to pay for them.
“It will be more enlightening to see the impact on buyers,” Boulger says. “Did they find the packs useful? Did the system alert their solicitors to legal problems early in the process? Did this help speed up their transactions?”
Unless there is a major government U-turn, brokers will soon have to deal with a partially tested and widely derided conveyancing innovation. So what should they be doing to prepare themselves?
Boulger says one thing they should not do is panic. Without HCRs, the packs may not cause as much disruption as was originally feared.
“Instead of costing up to £1,000, packs will typically cost around £400 – a relatively small proportion of a property’s value,” he says. “Owners of leasehold properties will be hurt most because the additional detail required means their packs could cost more, even though leasehold properties are typically lower in value.”
Boulger even doubts that the Conservatives will bother to make good on their earlier promise to scrap the packs.
“Compulsory HCRs won’t be introduced before the next election because they would be a vote loser,” he says. “Without them, the impact of HIPs should be fairly innocuous.”
John Charcol has decided against offering HIPs and Boulger expects estate agents to quickly sew up the market.
“I suspect many will market free packs, paid for either from the house sale proceeds or slightly higher commission, loaded to account for people who don’t sell their properties,” he says. “The cost will therefore disappear into overall estate agency fees. Brokers will find it hard to compete with that.”
Stripped of HCRs, Boulger sees no commercial benefit in brokers selling packs.
“We could offer the packs with 0% finance and no upfront charge but somebody has to pay in the end,” he adds.
But others disagree and warn that brokers will suffer if they allow estate agents to seize the initiative.
Rob Griffiths, associate director of the Association of Mortgage Intermediaries, says brokers could find their businesses threatened by aggressive estate agents offering sellers a three-part package consisting of a HIP, property selling services and mortgage advice.
“If this appears to save customers £400 on the cost of packs, many will snap it up,” he says. “That’s something brokers must be prepared to fight against. I’m not suggesting business will immediately disappear to estate agents but if brokers don’t prepare themselves it could trickle away.”
If estate agents take business from brokers, customers will also be the losers.
“Many estate agents operate panels of lenders rather than offering whole market advice, so their clients get a much narrower choice of deals,” says Griffiths. “This could be one of the unintended consequences of HIPs.”
So what should brokers do? First, they should decide whether they want to provide HIPs, probably through a third party provider.
“Brokers will have to forge relationships with providers and work out how best to offer HIPs to their clients,” says Griffiths. “This is something they should already have started, but the turn of the year should have focussed their minds.”
Brokers should also be explaining the new regime to clients, and that means every client on an ongoing basis.
“Brokers should explain what the packs mean,” he says. “If you plan to provide HIPs you should tell clients to speak to you first when they decide to sell their property. Otherwise you could end up losing those clients to the local estate agent.”
Alan Dring, sales director at eConveyancer, says many brokers have already given up the fight against estate agents but they are underestimating their abilities.
“With the exception of large firms such as Connells, estate agents have performed badly in competitive selling environments,” he says. “Local estate agents have performed particularly poorly. Brokers have beaten them hands down when it comes to selling mortgages and I can’t see why they shouldn’t be able to compete as HIP providers as well.”
Again, this means talking to clients. “You don’t need to dazzle them with science,” says Dring. “Simply explain that HIPs are coming and when they need one they should get in touch. A paragraph at the end of your letter finalising their current mortgage should be sufficient but many brokers still aren’t doing this.”
And as Griffiths points out, brokers should also be thinking about how they will source their HIPs – from a standalone provider, their network or even an independent estate agent.
“You should talk to at least two or three providers because if you choose just one partner and they can’t produce enough HIPs, this could seriously damage your business,” Dring says.
Neal Smith, compliance and business development manager at the Whitechurch Network, says it has already struck deals with eConveyancer and Easier2move.
“If you can refer your clients to a third party provider it will keep them out of the clutches of your local estate agent,” he says. “We jumped into bed with two companies so if one makes a mistake or withdraws from the market we won’t be left high and dry.”
Smith adds the network is also training the 200 brokers to deal with HIPs.
“We have been drip-feeding them information about HIPs and assessing their knowledge,” he says.
“Brokers need to understand HIPs and be able to explain them clearly to their clients, but that is all they need to know because they will then refer their customers on to experts,” he adds.
Karen Babington, sales and marketing director at Easier2move, argues that HIPs can be an important additional revenue stream for brokers.
“We are working with many leading networks to make sure brokers are supported during the lead-up to HIPs,” she says. “We’ve also developed portable HIPs for brokers which will allow customers to use more than one estate agent.”
Babington also advises brokers to build relationships with local estate agents. If an agent hasn’t finalised its HIP proposition, now could be a good time to offer it a combined service including mortgage advice.
Cath Hearnden, director at My Mortgage Direct, says brokers should be gearing up for speedier transactions.
“If buyers don’t plan their finances early, it could end up being their mortgage that holds up the transaction,” she says. “It makes sense to agree a mortgage before making an offer.”
This is where brokers can add value. “If a mortgage is agreed in principle before a buyer finds their property, the interest rate or sum required could change significantly by the time they find somewhere,” Hearnden says.
“The average borrower won’t want to make new applications or go through multiple credit checks but a good broker can do the work for them. Brokers must therefore have online accounts with all lenders and, where possible, be able to process mortgage applications at the touch of a button.”
Because of this, My Mortgage Direct is focussing on telephone advice.
“As the buying and selling process speeds up, borrowers must be in a position to move quickly,” Hearnden adds.
Brokers who offer HIPs through third party providers must ask them some tough questions such as – is the provider financially sound? Does it have experience in the housing industry? Does it have national coverage? Can it meet demand? Does it have any quality control measures in place? Will it be able to offer HIPs electronically? How much will packs cost? Will it offer white labelling? Does it have professional indemnity? Will clients have to pay for HIPs upfront?
Brokers must also decide whether to make a small profit on each HIP they sell or charge cost price.
Dave Marsden, partner at law firm Matthew, Arnold and Baldwin, says the quality and speed of providers’ services will differ.
“Some HIP providers may not have the best interests of sellers at heart, and there will be a wide disparity between good and bad providers,” he says.
Matthew, Arnold and Baldwin, part of pack provider HIP Homes, has set a guideline time for completing a HIP of five working days.
“That way there is no delay in sellers placing their properties on the market,” Marsden says.
He says brokers who build relationships with HIP providers could tap into a large market.
“Sellers need HIPs before putting their properties on the market,” he says. “Their first point of contact is likely to be an estate agent and its HIP provider. Those sellers may also need mortgages and this is the ideal time for broker to get introductions,” he says.
The question facing brokers is what to do about the challenge from estate agents. Do they ignore it, prepare for battle or make peace and hope to pick up referral business? The first is out of the question. The best strategy is probably a combination of the final two.
Brokers don’t need to be signing contracts just yet but they must start laying the groundwork.
lTEstate agents begin to see the value of HIPs
Peter Ambrose is director at The Partnership
As a Home Information Pack provider working with estate agents over the past few years we have seen how the issues and the market have changed. We have been involved in discussions that test the boundaries of the initiative and exposed some of the challenges that are raised when producing HIPs for larger, more difficult properties.
On talking to agents, we have found significant scepticism about the benefits that HIPs can bring. Their concerns centre around whether Home Condition Reports and Energy Performance Certificates will have any value with large older properties, the implications for properties that have been on the market for a long time and the potential duplication of work by buyers’ solicitors.
Given the nature of the properties we deal with we hear slightly fewer concerns about day one marketing issues, as sellers can take months to plan promotions and advertising before properties are brought to the market.
One leading agent that was particularly sceptical about HCRs found that in reality they delivered benefits. We completed one of the first HIPs to include an HCR under commercial conditions on a property that had been on the market for months with a rival agent. This meant that competitively, a rapid sale was important for the agent. When a potential buyer tried to renegotiate the price using the usual ‘problem with the roof’ argument the agent, using the HCR as evidence, was able to overcome the objection and the sale completed.
In our experience, HCRs are also valuable to sellers. When we produced a HIP that revealed the presence of woodworm, the seller immediately treated the symptoms and presented us with a certificate for inclusion in their HIP. They recognised that if a buyer commissioned a survey or spotted the problem themselves they would run the risk of renegotiation, with the buyer using typically fictitiously remedial prices as a bargaining tool.
Although agents think EPCs can have only one result, we have found that two inspectors can result in different figures for the same building, especially those that are larger or more complex. As inspectors work within certain tolerances this is not surprising, but for some agents this raised questions about the consistency of the reports.
We have found that all agents welcome the opportunity to obtain legal documentation from their clients in advance. Although most try to achieve this already, clients can sometimes be frustratingly uncooperative. Making the disclosure of this information obligatory – particularly lease documents – is seen as a benefit, especially with concerns about HCRs beginning to subside.
An awareness campaign is badly needed
Stephen Nation is director of HIPs at haart estate agents
The initial stage of the Home Information Pack trial has been successful for us. Over 90% of consumers have opted for the packs from our six branches that are taking part in the Association of Home Information Pack Providers’ dry run in Cambridgeshire.
Most home owners have bought into the idea of HIPs. Many have previously found the home buying process tiresome and stressful and believe it is time for the process to be improved and speeded up.
But the high uptake of HIPs is of no surprise when the packs are available free of charge. The real success of the early rollout is that we have made significant progress in educating the public, after devising our own campaign. And, crucially, we have been testing our systems and training our staff to ensure we are ready for the mandatory introduction of HIPs.
Although the full benefits cannot be realised until all sellers are required to have packs, participating in the early rollout is a great opportunity to give the industry time to ensure HIPs can be delivered to consumers in a fast and effective fashion.
Estate agents will play a big role in informing the public and will be at the forefront of the implementation of the packs. The reality is that HIPs will happen and the industry now has little time to prepare. There is still a sense of ‘will they or won’t they be introduced?’ in the air and estate agents that are burying their heads in the sand will lose out.
Although AHIPP is making great progress in its early rollout and is targeting a further 12 regions, the government remains silent. With less than six months to go it can’t stay quiet for much longer. Informing the public about HIPs is an enormous task and an aggressive marketing and public relations campaign must start now. The government is also taking its time publishing the final regulations, outlining the finer details of what will be required in packs. Time is running out.
HIPs will benefit home owners and speed up housing transactions
Larry Banda is head of mortgages at Nationwide
The news that Home Condition Reports will not have to be included in HIPs caused understandable concern in the industry.
But we still support the concept of HIPs and although we were surprised that HCRs would not form a part of them from the outset, we believe the most important thing is that a successful implementation could lead to the speeding up of the home buying process.
This may be more effectively achieved through a phased introduction, with Energy Performance Certificates being available sooner and HCRs coming along at a later date following more testing.
As a lender, to us the most important part of a HIP is the HCR. The presence of this report at application stage allows a lender to check the mortgageability of some properties without having to instruct a surveyor, enabling quicker offers to be made.
HIPs that include HCRs provide buyers with information to make informed decisions on whether to buy, including ratings that show where repairs are needed.
But aside from HCRs, there are other valuable components of HIPs which could be of benefit to both consumers and lenders such as EPCs, building certificates and planning information.
EPCs are designed to help home owners reduce the environmental impact of their homes. Our homes account for 27% of the UK’s carbon emissions and contribute to global climate change. A certificate will give home buyers and sellers ratings regarding properties’ energy-efficiency and help cut carbon emissions.
The Energy Savings Trust estimates that following the recommendations in an EPC will save the average home owner around £300 in fuel bills.
One concern put forward by industry pundits is that HIPs are likely to be costly to consumers. Pack price estimates vary from £600 to £1,000 (including HCRs) and depend on individual property characteristics.
But some providers may offer to absorb the cost of HIPs for certain customers. As with any new service, the more providers there are, the cheaper the packs are likely to be.
Another concern is that the introduction of HIPs will have a negative impact on the housing market. It is to be expected that the number of speculative sellers will diminish in the face of paying upfront fees for HIPs and some other sellers may be deterred from listing their properties due to uncertainties about the new process, but we expect such uncertainty to diminish over subsequent months as experience and awareness build.
We still believe that much of value will flow from the introduction of HIPs as they include elements such as HCRs and EPCs that are likely to be of benefit to home owners.