The recent introduction of Home Information Packs (HIPs) for three-bed properties has been met with a mixed reaction from the mortgage industry.
With so much controversy surrounding HIPs, what should I be aware of and what should I be telling my clients?
Eddie answers: The introduction of HIPs for three-bed properties on 10 September is just the latest controversy in this long-running government fiasco. To fully understand the debate surrounding HIPs, brokers must be aware of the chain of events that has led to the current situation.
The history
The idea of HIPs was first introduced by Labour in 1997. However, it was not until March 2006 that the government published a timeline for the implementation of HIPs, and then June 2006 that the contents of a HIP were set out in draft regulations.
Only a month later, the government started to back-track, announcing that Home Condition Reports (HCRs) would not be a compulsory element of the packs. The government’s main reasons for introducing HIPs with HCRs were two fold – to cut down on fair-weather vendors pulling out of sales, and to help buyers make an informed decision on purchases before incurring significant costs. To give some context, industry estimates put the cost of aborted house sale transactions at £1 million per day. The government intended to rectify this by putting the costs of this onto the vendors and giving prospective buyers sight of HCRs prior to making an offer. The dramatic u-turn to make HCRs voluntary effectively removed the backbone of HIPs.
From bad to worse
The situation then went from bad to worse. In mid-May this year an 11th hour legal challenge by the Royal Chartered Institute of Surveyors led to much embarrassment for the government and a delay in the introduction of the packs until August, and then with a staged introduction. HIPs for four-bed properties were introduced on 1 August and for three-bed properties six weeks later. The implementation was a rushed and irresponsible decision by the government, leaving insufficient time to evaluate and make improvements on the first phase of HIPs before extending the scheme to smaller properties.
Furthermore, HIPs were introduced into a particularly tumultuous housing market. With interest rate rises and problems in the US non-conforming market, launching HIPs at this time has not assisted in bringing about stability. In fact, some companies have reported a noticeable slump in the property market since HIPs were introduced. This can, in part, be attributed to the quieter time of year, but also to people avoiding the cost of a HIP by marketing a four-bedroom property as three bedrooms with a study.
This practice may be more difficult with a three-bed property, but it is clear that people are ingenious when it comes to saving money so an even bigger slump in October is quite possible.
Getting personal
Another issue is some banks’ decisions not to accept personal searches in the HIP report. Searches are a necessary part of the conveyancing process, in which a selection of documents is obtained from the council. These can either be obtained from a personal search agency that would go through the records, or by asking the council to do it on the client’s behalf.
The main difference between these searches is accountability. With a council search, the local authority is accountable but with a personal search, accountability generally falls under the purchaser’s solicitor’s indemnity insurance.
However, with HIPs, the onus has shifted to the seller. Therefore, it would be up to the seller’s solicitor to indemnify the search of a firm they may not even know, should vendors decide to compile the HIPs independently of their solicitor.
This dilemma has led to some lenders expressing reluctance to take personal searches as part of the HIP, representing another setback for the much-criticised scheme and an added headache for HIP providers.
Firstly, it is likely to cause unacceptable delays in the time that a HIP can be turned around. Personal searches can be generated in three to four days, whereas local authority searches can vary in turnaround time, with some taking up to four weeks.
Secondly, local authority searches are more expensive, which not only drives up the price of the HIP for the seller but also has an impact on those providing HIPs, many of which base their pricing, and their entire business plans, on the fact that they are providing less costly personal searches.
Thirdly, if local authorities are forced into a situation where they are the main supplier of searches for HIPs, they may well not be able to cope with demand, meaning that the searches would take even longer.
Here to stay
While there is no indication that the troublesome history of the HIP will let up, like it or not, they are here to stay. Understanding their background is important for understanding the current status and the opportunities that are now presented to brokers.
Brokers are in a unique position to provide clients with impartial advice on developing a HIP for their home or to suggest an accredited HIP provider. With the recent introduction of HIPs for three-bed properties – the largest proportion of the market – this is the perfect time for brokers to add value in the service offered to clients and revenue for themselves.
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