The mortgage industry has always had a love-hate relationship with Home Information Packs but for the Conservative Party the relationship has consistently been one of hate. HIPs were first proposed in Labour’s 1997 general election manifesto and the Tories may have had to wait 13 years, but their wish has finally been granted and in the words of communities secretary Eric Pickles, HIPs are history.
When Labour proposed HIPs its intention was to mirror similar schemes which had been used in the US and Australia to make the home-buying process more transparent.
In theory HIPs seemed fool-proof. What would-be purchaser wouldn’t want to read about all the faults of a property before they bought it?
But the packs have since been accused of slowing down the housing market by introducing bureaucracy and being an added burden for those looking to sell their properties.
They have also led to a drop in the number of speculative sellers who would in the past have put their property up for sale just to test the market.
The first trial of HIPs took place in Bristol in 1999 and was met with a mixed reaction. It showed HIPs achieved a 50% drop in the number of house sales which would have fallen through but estate agents who took part in the trial warned the packs could force up the cost of moving.
The uncertainty around HIPs led to their introduction being delayed until March 2003 when they resurfaced as part of a housing bill, with implementation scheduled for 2005. By the time 2005 arrived critics were already attacking the Home Condition Report in the packs as being of little substance and fears were growing that they would not be taken seriously by lenders or solicitors.
Eventually, in 2006 the HCR was sidelined, leaving behind what many deemed to be an empty shell. Would-be home inspectors who had rushed out and spent thousands of pounds on courses that promised lucrative returns were dealt a blow when the government made HCRs optional, meaning there was much less demand for inspectors.
This experience shows how important it is to do a proper cost-benefit analysis of initiatives such as HIPs in future
Even before they launched HIPs had created a strong army of opponents. Just before their launch in 2007 then shadow housing minister Michael Gove slammed the packs for offering customers little value for money.
He even quoted an article in Mortgage Strategy by Nick Baxter, managing director of Mortgage Promotions, which had the headline ’We can make money out of HIPs’. Gove mistook Baxter for a HIP provider and said the article showed how pack providers were already “salivating at the prospect of extra cash”.
The road since then hasn’t been much easier for HIP providers. From August 1 2007 all owner-occupied properties with four or more bedrooms were required to have a HIP from the point of marketing their property, which led to a surge in people trying to get their homes on the market before the clock struck midnight.
The launch was met with scant enthusiasm from the industry and estate agents. In fact, less than a year after their launch estate agents had their daggers out and were calling for the packs to be scrapped.
They argued that HIPs had not lived up to their original objectives of speeding up the buying process and putting an end to gazumping. Some research also showed that HIPs had slowed down the home-buying process and were deterring individuals from putting their properties on the market.
Despite this, the publication of the housing ministry’s HIP area trials results showed that 72% of consumers were either fairly or very satisfied with HIPs. The results also showed a 10% reduction in the time taken to exchange contracts.
But in reality this did not seem to translate into wider public satisfaction with the packs.
“The original policy objective of improving the house purchase process was sound but HIPs were simply the wrong vehicle for the job,” says John Heron, managing director of Paragon Mortgages.
“In fact, they added a new and expensive layer of bureaucracy to the process and did the opposite of what they were intended to do.”
Heron believes one of the problems with HIPs was that they discouraged those who didn’t have to sell from testing the market because of the hassle and upfront cost involved, And he says their suspension is likely to encourage speculative sellers back into the housing market.
“Suspending HIPs could encourage some potential sellers to put their homes up for sale,” he says. “This can only stimulate activity in the housing sector.”
Of course, it remains to be seen what effect scrapping HIPs will have on the housing market.
“Consumer and industry feedback has highlighted the fact that HIPs have been a headache for many people trying to buy and sell properties in the past few years,” says Phil Cliff, mortgage director at Santander.
“Suspending the packs may help stimulate the housing sector, convincing home owners who were reluctant to put their houses on the market because of the paperwork and associated costs involved to start the process.”
The Council of Mortgage Lenders says it was sceptical about HIPs at the start but because the government was determined to press ahead it decided to adopt a pragmatic approach and sought to minimise any negative effects on its members.
“HIPs have caused significant cost to firms and consumers alike, and the decision to scrap them reinforces how important it is for any government to undertake a proper cost-benefit analysis of initiatives such as this before going ahead with implementation,” says a CML spokeswoman.
But it should not be forgotten that HIPs were introduced to fill a hole in the housing market.
When the government first proposed the introduction of HIPs they were designed to give home buyers upfront information about a property which would speed up sales and reduce the number of transactions falling through, so does this mean the industry will have to come up with an alternative?
“HIPs have failed to address the significant problems in the buying transaction they were supposed to tackle,’ says Gillian Charlesworth, director of communications at the Royal Institution of Chartered Surveyors.
She says that taking such a swift decision to scrap the packs should minimise the impact on the market and ensure estate agents that stick to the rules don’t lose out.
EPCs could still have an important role to play as the new coalition government moves its green agenda forward
“The government must now take this opportunity to move on with positive discussions about improving the home-buying process, working closely with the industry as well as professional bodies that have already done a lot of work on this issue,” she says.
She is urging the government to come up with innovative proposals to reform the system of buying and selling homes.
“Rather than seeing this announcement as the death of HIPs it should be seen as the start of a new process that brings real change to the experience of buying a home,” she adds.
Although there might have been much industry rejoicing at the news that HIPs are to be scrapped the government seems to have given little thought to the redundancies which will inevitably come hand-in-hand with it.
“I can’t understand suspending HIPs at a time when confidence is coming back to the market,” says Alan Dring, managing director of The Mad Approach. “It seems like a bad idea to scrap the packs immediately with the loss of at least 3,500 jobs and perhaps as many as 7,000 could be affected.” I hope that those who have paid to get qualified in different aspects of the HIP proposition haven’t wasted their money but it seems they have. The damage to some in the industry is likely to be immediate and in some instances individuals will not be able to recover.”
This has led to questions on whether HIPs could have been saved and whether the government was wrong to get rid of them. Could it have reformed them in some way to make them more effective?
“HIPs could have been saved,” says Dring. “They needed improving but to scrap them as quickly as the government has done is inappropriate.”
A 100-day consultation period was promised to the Association of Home Information Pack Providers by the Tories before they came to power, but this did not happen.
“The Conservatives could have done what they said they would which was to have a consultation,” says Mike Ockenden, director-general of AHIPP. “But they were pretty quick to ditch the packs without any such move.”
He estimates that as many as 3,000 people will be put out of work immediately.
“It’s sad, particularly for those who have trained,” he adds.
And Ockenden says AHIPP statistics suggest the home-buying process had improved since HIPs were introduced.
“It was moving in the right direction – we feel that the baby has been thrown out with the bath water,” he says.
Ronnie Park, founder and chief executive of OneSearch Direct, says it will be a blow for the property sector, putting thousands of professionals out of work and adding confusion to an already complicated process.
“Although the Labour government delivered HIPs legislation that was clumsy and unrefined it was a step towards a new era of e-conveyancing,” says Park.
He says the progress towards e-conveyancing must continue to enable a more efficient and transparent system.
“Energy Performance Certificates remain a vital tool in ensuring the efficiency of homes but they alone can’t safeguard the integrity of the process,” he adds. “We still need adequate property information checks in place and must now look for market-led solutions to supplement EPCs.”
He says getting rid of HIPs doesn’t get rid of the need to conduct due diligence on what is the biggest investment of people’s lives.
“We still need to radically simplify and automate the system and get rid of all the unnecessary stress, time and money expended in buying andselling houses, and we’ll need more than EPCs to do that,” he says.
So the spotlight has now been turned on EPCs and what part they will play in the buying and selling process of the future.
Richard Sexton, business development director at e.surv, says relying on EPCs might work in theory but in reality it’s hard to police the way the certificates will be implemented.
“The government has announced regulations for the management of EPCs but not much appears to be new – it seems little more than a sop to compensate for abolishing HIPs,” says Sexton.
He maintains that the big question for the government now is how it will enforce the regulations.
“EPCs have been mandatory since October 2008 and subject to fines for non-compliance,” he says. “While they have been visible in estate agents’ windows many private landlords ignore this requirement when letting property.”
For EPCs to be successful there will have to be higher penalties for landlords and sellers who do not offer them than the current £200. But they could have an important role to play if the coalition government is to push forward its green agenda.
“They could become powerful in the future as a way of driving differential tax breaks to support the environmental agenda and therefore become an important part of consumer decision-making,” says Sexton.
The Property Codes Compliance Board believes no evidence has been produced by the government to support its claim that HIPs have damaged the housing market. It fears the impact of the HIP suspension will be to impose new costs on all buyers, particularly first-timers. It has written to the housing minister seeking clarification of the government’s intentions with regard to the property buying process.
“We take the view that buyers should be entitled to as much information as they need at an early stage before deciding whether to make an offer,” a statement from the PCCB says.
It wants to see clarity for prospective home owners not only on the purchase price and mortgage repayments but also on maintenance costs and measures required to improve the energy performance of properties.
One option would be to adopt a similar model to the Scottish version of the HIP, known as the Home Report. This is a pack of three documents – a single survey, an energy report and a property questionnaire
The survey contains an assessment by a surveyor of the condition of the home, a valuation and an accessibility audit for people with particular needs.
The energy report contains an assessment of the energy efficiency of the home and its environmental impact. It also recommends ways to improve energy efficiency.
The property questionnaire is completed by the seller. It contains additional information about the home such as Council Tax banding and costs that will be useful to buyers.
“The government could move towards the more successful Scottish Home Report model but this doesn’t seem to be a high priority,” says Sexton.
But not everyone is rooting for the Home Report in Scotland to be maintained.
“It would be a better idea if Scotland followed suit and scrapped Home Reports,” says David McLetchie, a member of the Scottish parliament
“They were the product of a rising market and are inappropriate now. They cost between £500 and £800. It was said that people would save money on surveys but that has not happened.”
He says he would vote to get rid of the reports immediately but can’t because they were implemented through primary legislation.
With the government fanfare that has surrounded the abolition of HIPs it’s unlikely that replacing them with something better will move up the agenda soon.
HIPs will no doubt go down in history as one of Labour’s biggest botch-ups but the intention to create a streamlined and more efficient housing market for all was a noble one. So the packs may be dead but problems in the buying process will haunt the housing sector for some time.
HOW THE SUSPENSION OF HIPS WAS ANNOUNCED
“In the thick book of Labour folly, undoubtedly an entire chapter will be devoted to Home Information Packs. This useless, pointless and unnecessary piece of legislation has slowed down the housing market and caused unnecessary problems. I have now signed an order that effectively suspends HIPs – HIPs are history. This action will encourage sellers back into the market and help the housing sector and the economy recover.”
“We have done something important with less than a week with our foot under the table, with the communities secretary signing away for suspension those horrible HIPs that have been nothing but trouble from day one. They have stopped people from going out and selling their homes.
From this weekend you will be at liberty to walk into any estate agency, put your house on the market and not have to worry about shelling out hundreds of pounds for a useless pack.
This is a great example of how this government is getting down to work by cutting away pointless red tape that is strangling the market. Rather than shelling out hundreds of pounds for nothing in return we’re stripping away bureaucracy and letting home owners sell their properties.”
WAS THE GOVERNMENT RIGHT TO SCRAP THE PACKS?
PRESIDENT, THE LAW SOCIETY
Uncertainty in the housing market coupled with the excessive costs to consumers made the abandonment of HIPs the only sensible option. They have led to increased costs and a host of cross-selling initiatives that were not in consumers’ interests. The advent of the packs encouraged estate agents and HIP providers to vie with each other to gain initial access to consumers so that they could be referred to other professionals and service providers for a fee. This distorted the market.
DIRECTOR, MORTGAGE PROMOTIONS
With a few amendments HIPs could have had a positive effect on the market. Having to provide documentation upfront eliminated time-wasters who were simply testing the market. But this backfired and people who initially only wanted to test the market but could have been coaxed into selling were put off, so the overall effect on sales was negative. Anyway, HIPs were often useless as lenders did not trust them and still wanted to get their own valuations and surveys.
MANAGING DIRECTOR, FRANK EVE CONSULTING
The point of HIPs was not clear in the first place but I’m glad EPCs are being retained. Of course, the decision to
scrap the packs is unfortunate for HIP providers and it’s disappointing that money has been wasted on the system. But it’s good that HIPs are gone as they did not streamline sales or add anything positive to the process.
PETER BOLTON KING
CHIEF EXECUTIVE, NATIONAL ASSOCIATION OF ESTATE AGENTS
For those of us who have weathered the turbulent market conditions of the past year the suspension of HIPs is
welcome news. It will be greeted enthusiastically by both the housing market and home buyers, few of whom have
paid much attention to these pointless packs. It’s also good news for sellers. They no longer need to shell out hundreds of pounds for a piece of pointless regulation that benefits nobody. We confidently predict that the end to electoral uncertainty along with the abolition of HIPs will provide a substantial boost to the housing market.
GROUP DIRECTOR, MORTGAGE CENTRE IFA
It’s a good thing HIPs have been scrapped and it proves the initiative was ill-conceived. They were never popular and there were always doubts about their validity. It added a layer of bureaucracy and cost which may have hindered sellers. It was intended to encourage transparency and cut the number of deals falling through between offers being accepted and exchange of contracts. This would have been more easily achieved by focussing on streamlining the legal process to make agreements more binding from an early stage, as in Scotland.
SENIOR TECHNICAL MANAGER, JOHN CHARCOL
The scrapping of HIPs came as no surprise and I’m pleased the government acted quickly once the message was out that the move was imminent, as potential vendors would have been withholding their properties until the packs were dumped. The new idea of allowing properties to be marketed a month before the EPC is obtained is positive. This should be taken further by allowing an EPC to be used for the same property for 10 years no matter how many times it is sold, rather than insisting each sale must carry a new EPC.
MANAGING DIRECTOR, QUEST
There would be some advantages to incorporating the contents of the Scottish Home Report into the new solution for England and Wales to deliver transparency for consumers. And there would be little cost difference for consumers as the introduction of a survey element would take the place of legal searches. By adopting this tried and tested solution the coalition could quickly implement a solution that results in minimal disruption to the home buying and selling process while maximising benefits for consumers.
HEAD OF LENDING, MORTGAGE ADVICE BUREAU
Estate agents and those buying and selling properties have long been critics of HIPs due to the lack of various aspects such as HCRs. But the concept of information-gathering is a sound one since this data is required anyway. But whether it all needs to be gathered together in a single document from the start of a transaction at a cost to the individual is debatable. I think scrapping HIPs is a good decision although I’m surprised it was done without consultation because it affects a lot of individuals working in the area of HIP provision.
CHIEF EXECUTIVE, SPICERHAART
Once HCRs were abandoned HIPs became a pointless exercise. They didn’t stop time-wasting or house sales falling through and the public showed no interest in looking at them. The single saving grace of this failed Labour legislation is that EPCs are to be kept.
PROPERTY EXPERT AND TV PRESENTER
Moving house is difficult enough. It’s expensive and stressful and often done at times of heightened stress anyway – new job, marriage, divorce or the death of parents. It’s absurd that there should ever have been this additional expense on top of the costs already incurred and I’m thrilled to bits that the packs have been scrapped. I’ve campaigned for a long time to get rid of them so this move is a cause for celebration.