What is the dry run for?
1. The Regulatory Impact Assessment says that once packs are fully implemented and bedded in they are expected to deliver a range of benefits:
• a reduction in waste and duplication;
• a reduction in the number of failed transactions;
• quicker transactions, with a shorter period between offer acceptance and exchange of contracts;
• increased competition exerting downward pressure on prices, including reduced buyer and seller conveyancing costs;
• reduced costs per successful transaction as well as overall costs in the market;
• improvements in the condition and energy efficiency of homes, reducing carbon emissions;
• reduced costs for first time buyers
2. The CML believes that part of the rationale for the dry run should be to test, as far as possible, the extent to which HIPs are on course to deliver these benefits. But it is not clear that it will do so.
3. The details of the dry run remain less than clear. The Department for Communities and Local Government's (DCLG) dedicated website points to only vague information about what the dry run involves.
4. The Regulatory Impact Assessment (RIA) gives a little more information (paragraphs 199-205), setting out the three anticipated "phases" of the dry run. The RIA says (para 199):
"Whilst the Housing Act 2004 was passing through the Parliamentary process, it was agreed that a six-month "Dry Run" of activities would be considered to enable practitioners to test their new systems and processes in advance of commencement of the statutory scheme".
5. In fact, this is rather weaker in tone and substance than the ministerial statements that were made at the time. For example, the then Housing Minister Keith Hill said in November 2004:
"I can give an absolute assurance that we will not bring this system in until we are absolutely clear that it is going to work. We envisage various kinds of dry run to ensure that it is working properly."
What will the dry run consist of?
6. Given that there are still very real uncertainties around a number of the elements of implementation, the dry run is extremely important. We believe the DCLG needs to articulate much more clearly what monitoring assessments and success criteria are being used to evaluate experience during the dry run.
7. The DCLG's website contains a number of pre-requisites before the dry run can begin. These include that:
• The Secretary of State should have made regulations:
• prescribing the contents of home information packs for the statutory scheme [complete];
• making further provision in relation to the home condition report (HCR) to enable certification schemes to be established, and for the keeping of a register of HCRs and their registration by home inspectors. These regulations will cover who should be able to access registers of HCRs, for what purpose and on what terms. This will govern, for example, access by conveyancers and lenders to HCR data stored on the register [partially complete]; and
• prescribing cases and circumstances where the home information pack duties will not apply (for example, mixed use residential/commercial properties) [complete].
• The Secretary of State is likely to have approved a certification scheme of home inspectors, and it is hoped at least one estate agents redress scheme [not complete – due August 2006].
• The government will have carried out research into home buying and selling to provide a baseline for monitoring the transactions process and operation of the housing market during the 'dry run' and thereafter following introduction of the statutory scheme [not complete – due December 2006].
8. As indicated above not all the criteria have been completed, and the baseline research will only be available in time to use as a benchmark against the later stages of the dry run.
9. The dry run must be a real and robust test of the process from start to finish. The CML considers that this would include ensuring that a good cross section of property types are included (freehold/leasehold, urban/rural, standard and non-standard construction types, terraced, semi-detached, bungalows, flats and detached and new build.) Pack production and transactions need to be tested in sufficient quantities to ensure that the systems can cope with significant workloads.
10. The RIA notes (para 203) that the DCLG "will put in place clear assessment, monitoring and research on the progress and outcomes at every stage of the dry run". So what are they? The DCLG should publish the assessment and monitoring plans for the various phases of the dry run as soon as possible.
CML views on what the dry run should assess
11. We consider that the following questions should be measured and monitored:
• Phase one (currently under way) – Voluntary partial HIPs
• How long does it take to acquire pack components? Do leasehold packs take longer to put together than freehold packs?
• How long does it take if there is unregistered title?
• How long does it take local authorities to respond to search requests?
• What proportion of pack providers are using personal search organisations?
• What does a pack cost? How is the seller paying for this?
• Phase two – Voluntary full information packs. This phase cannot start until the first home inspector certification scheme is approved (expected to be in the autumn of this year).
• How long does it take for a home inspector to be registered?
• What is the rejection rate for home inspectors?
• How long does it take to complete a HCR (and what does this tell us about the number of home inspectors needed)?
• What use are buyers and sellers making of the HCR? Are sellers fixing any problems identified by the HCR before putting it on the market? Are buyers negotiating on price as a result of the HCR? Are buyers put off by properties with defects? Do properties with defects stay on the market longer than those without?
• Can buyers and sellers make effective complaints about a home inspector?
• Can HCRs be lodged on local certification scheme registers? And can they be uploaded to the central archive?
• Can buyers get information from local registers about home inspectors or HCRs?
• Who will judge whether pack providers have completed packs in line with the regulations?
• What duplicate activity is taking place in terms of searches being redone, or searches that have not been included in the pack that should have been?
• Is there any evidence that transaction costs are reducing?
• Phase three – Voluntary tertiary activity (expected to begin from January 2007). This enables lenders to acquire and use HCRs.
• Can lenders acquire HCRs? What problems are encountered?
• How are lenders using HCRs in their decision processes?
Unanswered confidence issues during the dry run
12. The full dry run cannot start until the home inspection (HI) certification scheme is in place. The certification scheme will provide confidence in the home inspectors and the HCRs that they produce. However, there is no such scheme for pack providers. We understand that the Association of Home Information Pack Providers (AHIPP) is developing a voluntary accreditation scheme for pack providers. We believe this is essential for public confidence and hope that such a scheme can be brought forward as soon as possible for debate.
13. As a side issue, we think there are currently unanswered questions that need to be dealt with to ensure the dry run process is well understood. In particular, what legal status does a voluntary HIP have and, therefore, what reliance can there be on it before the 2004 Act is fully in force? If there is any doubt about lenders' ability to rely on HCRs produced before a statutory implementation date, then they will not rely on them and will continue with current valuation practice.
14. From the public's perspective, it will be important that there is an understanding of the status of non-statutory packs and that there is adequate monitoring of the quality of them. Any problems with the packs during the dry run may lead to a lack of confidence in the new process.
Conclusions
15. To summarise, we believe that DCLG now urgently needs to set out –
• What the dry run is actually designed to test;
• What the DCLG monitoring and assessment of each phase consists of;
• What the measures of success are to evaluate the dry run experience in each phase, and when the evaluation of each phase will be published;
• What the triggers would be that would prompt any re-designing of the HIP process; and
• What the triggers would be that would prompt any postponement of the proposed implementation date of 1 June 2007.
