This week the housing industry saw the introduction of mandatory Home Information Packs (HIPs) for three-bedroom properties.
This latest milestone in the HIPs saga, which was announced on 17 August, met with a mixed reaction – no surprise when you consider that the packs’ introduction has been fraught with last-minute hitches, challenges and concerns – not to mention heaps of criticism.
Six weeks after HIPs became compulsory for the sale of four-bedroom properties, some critics still have their doubts about whether the packs will help the property transfer process at all, while others think their introduction has been rushed and poorly thought out.
Some parties, however, are pleased that the government has stayed true to its pledge to extend the legislation to three-bedroom properties by the Autumn.
A vote of confidence
Jeff Smith, chief executive of HIP Payment Services welcomes the move. He says: “Surely this further vote of confidence from the government will finally bring to an end the campaign of unjustified negative propaganda that we have had to endure in recent months and that we can now focus our attention on giving the public the high level of service that they should expect.”
The news also got a positive response from the Association of Home Information Pack Providers (AHIPP), which has been working with its members since HIPs were introduced for homes with four bedrooms or more last month. It says the industry is fully prepared for the extended rollout to three-bed homes and that it paves the way for the compulsory implementation of HIPs for all homes.
Mike Ockenden, director-general of AHIPP, says: “I would now strongly urge the government to extend the implementation to the rest of the housing stock, so that HIPs can really start to do the job they have been brought in to do. At last there is some relief in sight from the incredible stress that home sellers and buyers endure, and in addition, we can start to significantly improve the energy efficiency of our homes.”
Waiting for the evidence
However those opposing HIPs say the extension of the legislation to three-bed properties has come too soon with there being little chance to see how HIPs work and what improvements need to be made to the system before widening it. Many are still waiting for evidence that HIPs are speeding up the process of buying and selling homes – which was the packs’ original aim – although most agree that the government’s focus seems to have switched to the green benefits of energy efficient homes, rather than quicker completion times.
Melanie Bien, associate director of Savills Private Finance, says that sellers have accepted they need to have a HIP in place but many are still not happy about it. “It adds extra cost and there are potential delays in getting the property onto the market. It is just hassle,” she says. “There is no evidence of it speeding up the buying process, which was the initial aim of HIPs. Buyers don’t seem to be particularly interested in HIPs; they are still far more concerned about whether they like the property, and rely on their solicitor to make any necessary searches and highlight any problems to them.”
An irresponsible move?
As well as concerns from the mortgage industry, the Law Society has criticised the government for failing to conduct a thorough review of the first phase of HIPs before extending the scheme to smaller properties.
The society is arguing that it is highly irresponsible to move to the next phase as there has not been time for a meaningful evaluation of the introduction of HIPs. The Law Society believes that a proper evaluation to accurately monitor the first implementation phase is essential before extending the scheme.
Paul Marsh, vice president at the Law Society, says the government has a ‘cavalier’ approach to HIPs and the home buying process. “It is far too early to be sure how the introduction of HIPs has worked in practice,” he says. “It is impossible for the government to have taken into account the operation of HIPs in the market following their introduction during the quiet August market, particularly given the fact that the first phase of the scheme only applies to 17 per cent of the total market.”
Marsh says that the government needs to wait to ensure that the first tranche of HIPs has operated successfully before considering rolling it out to smaller properties, rather than rushing ahead prematurely.
“October would be a more acceptable earliest date for the introduction of HIPs, so that in September a full review of the introduction process could take place,” he adds.
The Law Society says the government is bowing to pressure from those with a primary financial interest in the HIPs market while there has been no formal communication to the other established stakeholders such as the Royal Institute of Chartered Surveyors (RICS), National Association of Estate Agents (NAEA) and the Law Society.
Inspector shortgage
The NAEA is another party concerned about HIPs’ speedy introduction. It says that the problem of there not being enough qualified energy assessors ready to compile Energy Performance Certificates (EPCs), a compulsory component of a HIP, still remains.
NAEA chief executive, Peter Bolton King, says: “We did anticipate the second phase to be in the Autumn, but with this announcement it now appears that the government may try and include all dwellings by the end of the year. This will continue to place uncertainty into an already delicate residential market.”
Bolton King goes on to point out that the housing climate is unsettled at the moment – home owners and hunters are already feeling the pressure due to continuing interest rate rises which is placing increasing strains on their wallets. The problems in the US non-conforming market have also had a knock-on effect on the stock market. He reckons that adding HIPs to the mix will not assist in bringing about stability; and to the contrary, it will hinder it.
Getting personal
As well as the timescale for HIPs’ full introduction causing controversy, an announcement by HSBC on 22 August threw the scheme into further chaos. The bank said it would not accept ‘personal’ searches in the HIPs report. This would force potential customers to pay out to the lender’s solicitor search in addition to the mandatory HIP fee.
The vast majority of the searches done by HIPs providers are ‘personal’ searches, rather than ‘full’ searches provided directly by the local authorities. Local authority searches cost more – between £200 and £300 – than personal searches which cost around £120.
According to the Council of Mortgage Lender’s lender handbook, other lenders that do not accept personal searches include Advantage, Amber Homeloans, Platform and Rooftop Mortgages. Abbey, Alliance & Leicester (A&L), Bristol & West (B&W), Lloyds TSB and Nationwide all say they will accept personal searches provided search agents have adequate professional indemnity insurance. But A&L and B&W also require agents to subscribe to a code of conduct called the Search Code.
However, the Communities and Local Government says the issue of personal searches has been overblown and AHIPP believes reporting of the issue has been misleading.
“Over half a million personal searches are conducted every year and consumers have been free to choose whether they opt for a personal or local authority search for many years,” says AHIPP deputy director-general, Paul Broadhead. “Personal searches already account for around 50 per cent of the market today and are accepted by the majority of lenders. Whether lenders such as HSBC elect to accept personal searches or not is their individual choice and their position on this is in no way as a result of the introduction of HIPs.”
Controversy
The introduction of HIPs has always been controversial. The 11th hour decision mid-May to delay the introduction of the packs until August, and then with a staged introduction, was the latest in a long line of problems since the idea of HIPs was first mooted in the Labour Party’s 1997 manifesto.
Just a week before, former Communities Secretary, and now Transport Secretary, Ruth Kelly’s announcement, a motion by the Conservatives to scrap HIPs failed after the government defeated the motion by 306 votes to 234. But a judicial review of the EPCs in the packs called for by RICS proved to be the last straw and the government was forced into an embarrassing turnaround on the packs’ planned implementation date.
It was in March 2006 that the government published a timeline establishing clear guidelines of the path towards implementation. In June last year, it set out draft regulations detailing the contents of a HIP but, only a month later, ministers did a u-turn about the inclusion of a Home Condition Report (HCR) in the pack and it became a voluntary, rather than compulsory element.
The HCR was seen by many as a crucial element of the HIP because buyers had the chance to see, upfront, the state of the property before they made an offer. However critics argued that many buyers would not rely on a survey commissioned by the seller and would also get their own report done.
A success story?
It is difficult to say for sure how successful the introduction of HIPs for four-bedroom houses in August has been. Unsurprisingly, those whose living depends on providing the packs reckon it is going well. In the first week of August, AHIPP was very fast to report quick turnaround times for the packs. Leading the way was pack provider Richards Gray, through estate agents Savills, which provided a pack for a property in Long Marston within 48 hours of the order being placed, and with the electronic version available to the estate agent within 30 hours.
However, the NAEA says the introduction of HIPs has caused disruption to property supply. The association’s latest survey of members has revealed that following the first phase launch on the 1 August, the number of four-bed plus properties on the market decreased in many areas. 63 per cent of agents reported decreases in the number of larger properties on their books over and above the seasonal norm. On average agents reported drops of 37 per cent. Home owners staying out of the market to avoid HIPs was cited as the main reason for the decrease.
“Our concerns have always been that the introduction of HIPs would lead to a lack of supply following implementation,” says Bolton King. “This does indeed seem to be the case with four-bed homes and is now likely to be replicated in the three bed homes market. The next few months will prove crucial in seeing whether HIPs are going to cause the sort of problems we feared.”
Some critics, such as Moneysupermarket.com, say that vendors will try to avoid the need for a HIP by marketing their property in a certain way – such as describing a three-bed property as ‘two bedrooms with a study’.
“The government should bite the bullet and admit, in their current format, HIPs are a disaster,” says Louise Cuming, head of mortgages at Moneysupermarket.com. “The concept behind HIPs was plausible, but all the constant watering down and fiddling with the legislation means it has become nothing but a political slurry. It will be of absolutely no benefit to consumers if it isn’t radically overhauled.”
But Henry Pryor, founder of Primemove.com and TheHIPExchange.com, says the decrease in properties coming on to the market is nothing to do with HIPs.
Primemove aggregates the homes advertised on property portals across the internet and the site sees over 90 per cent of all properties marketed. Its figures show that during an average month, more than 120,000 properties are brought to the market. “August is traditionally not a month when larger properties are launched as people are on holiday,” says Pryor. “I suspect that we will find that the drop reported is due to seasonal fluctuations and while we can see a credible reduction year-on-year, the number of properties being marketed is about 15 per cent lower this year compared to last.”
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