Over the past 12 months, a great deal of the rhetoric in the mortgage trade press surrounding the introduction of Home Information Packs (HIPs) has referenced and warned mortgage advisers of an impending threat. It has been suggested on numerous occasions that the introduction of HIPs would move estate agents up the supply chain to a point where they could, and would, encroach on ancillary product areas, namely mortgage advice. In the early days, the mortgage industry did not pay a huge amount of notice to the issue and, perhaps understandably, felt that HIPs had little to do with them and were fundamentally an estate agency issue. Nevertheless, it isn’t an issue that looks likely to go away and we should be prepared as HIPs have been on the agenda and in the public domain since their pilot scheme in Bristol five years ago.
Now the reality is upon us – HIPs will be compulsory in 2007 with a ‘dry run’ in 2006 and there has been a plethora calls for all sectors of the market to sit up and take notice especially mortgage brokers.
Groundswell of fear
Over the past year there seems to have been a groundswell of fear that estate agents are marshalling their forces and, hot on the heels of HIPs, would be their ‘tanks’ on the mortgage brokers ‘lawn’. Moreover, I read recently that over three-quarters of brokers fear the estate agents will gain greater control over the mortgage advice. That is a huge number, and I was intrigued to explore the justification of this fear. Is this merely a case of fearing the unknown, or will HIPs truly allow estate agents to cut swathes through a broker’s customer base and profit line?
This proposition was certainly not without foundation, but I’d like to argue that the market has done something – if not a reversal, at the very least a significant swerve – as this does not seem to be the aim of the estate agent. I would argue that, although it is vital that the link remain strong between the two groups, just because they are not mutually exclusive does not mean that business models need to be intrinsically linked.
For mortgage brokers there is certainly an argument that borrows from Franklin Roosevelt, who claimed that the only thing to fear was fear itself. Mortgage brokers operate in a competitive, highly developed and massively regulated environment and I think they may be doing themselves a disservice to believe this can be so easily cast asunder. It is certainly hypothesised that whoever provides the HIP would have ‘ownership’ of the client, crucially at the point where mortgage advice is still required. Theoretically, this would lead to an increase in the provision of advice from either within the estate agency premises, or via an approved mortgage advice partner. This is certainly a possibility and there remains the significant opportunity for both horizontal and vertical product provision.
However, there is also the argument that if mortgage advice was such a golden goose for estate agents they would all be running this within, or at the very least, in parallel with their existing business model. Estate agencies have been up-and-running for over 100 years and it seems unlikely that they have been patiently biding their time, waiting for the introduction of HIPs to launch their assault on the mortgage advice market.
Damage limitation
I rather think that estate agencies have greater concerns over damage limitation after the Whistleblower programme on the BBC, and the fact that they will shortly have to compile something completely new just to put a house on the market, or fall foul of a £200 per day penalty. This month I read with interest a detailed article by the CEO of an estate agency chain who discussed at length the pros and cons of HIPs, the challenges of practical implementation, the costs, process and procedures et al. This chap had even been providing HIPs in the form of his own dry run for almost a year and, after a sensible presentation of the facts, revealed that he was now coming down in favour of the packs.
So, why did this catch my attention? Simple. In this long and highly detailed review, there wasn’t a single reference to mortgages. The view of the head of this estate agency chain (although I would not necessarily assume to be completely representative of the wider market) did not even touch on mortgage advice, but focused on the myriad of additional complications he faces to sell exactly the same number of houses he is currently. This example suggests that there may, in fact, be something akin to paranoia in the mortgage market that estate agents will have their tanks on our lawn.
My suspicions were aroused and I sought a variety of other ‘blogs’ and sure enough, after some considerable research, I came to the conclusion that estate agents don’t really give a hoot about leveraging HIPs to steal mortgage sales and usurp the broker for the mortgage element of the housing chain. I have even spoken with an estate agent about some of the interest and concern expressed by mortgage brokers and his incredulous comment was, “What’s it got to do with that lot?”
Laissez-faire
There is no doubt that, with little government intervention aside from the framework and boundaries of the pack, the implementation will create a laissez-faire or free market within which there will inevitably be winners and losers. Additionally, there will certainly be areas for business development, one of which is the link between brokers and non-corporate estate agencies and possibly solicitors, although these links are not historically strong. Smaller mortgage brokers will need to be mindful of the steps being taken by the larger corporate players to develop strong estate agency links but there is little evidence that this will pose a market-wide threat.
In point of fact, the new home selling procedure provides an opportunity for brokers to add some real value for their customers if they manage their client banks effectively and support customers from an earlier stage in the house buying process.
Perhaps the most critical issue for a successful implementation is on the technical side and the creation of a slick process to bring together all of the various elements of the pack. The majority of this technology is in place and brokers can easily review their business models to investigate the benefits of either providing the packs themselves or create a business relationship with a HIP provider. In our recent survey of the housing market, we asked the question: ‘Will HIPs create a stronger link between estate agents and mortgage brokers?’ Although 21 per cent of respondents thought that a stronger link would be formed (an increase of 13 per cent) this number is still lower than I would have expected.
Developing relationships
If mortgage advisers are going to realise additional benefits from the introduction of HIPs, they need to be unafraid of change and to work to develop these relationships. A decisive business consequence for any pack provider will be cashflow if, as looks likely, packs will be provided free to sellers upfront as a marketing and client acquisition tool. With HIPs anticipated to cost around £600, there is a significant resource required to fund this upfront cost, although sellers will of course pay for them at a later stage in the process. This may persuade some intermediary firms away from being providers themselves but should reinforce the need for new business alliances.
HIPs potentially provide a huge opportunity for intermediaries but, whether you are going to immerse yourself or have your business sit outside the new process, this needs to be a definite and planned business strategy. HIPs are going to be an integral part of the market and brokers need to ensure they are not marginalised through apathy. I do not believe brokers have anything to fear from estate agents and there certainly won’t be any estate agency tanks on brokers’ lawns. Conversely, with the possible benefits that co-operation could bring, it may be the case that a ‘Free Parking’ sign could be the order of the day.
