It was only recently that the government announced its timetable for the implementation of Home Information Packs (HIPs). But there still remains a great deal of debate on whether HIPs pose a real opportunity to the property market or whether they pose more of a threat.
While the government seems determined to plough ahead with plans to implement HIPs on 1 June 2007, there are still a number of concerns that remain about the impact HIPs will have on the housing market. More recently these concerns have been raised by the ’10 Minute Rule Bill’ introduced by the Tory MP Ian Liddell-Grainger, to amend the Housing Act to remove HIPs. This of course, has little or no chance of passing into law, but it is a useful and effective way to raise awareness of the HIPs issue.
With the Office of the Deputy Prime Minister (ODPM) ready and set to launch a million pound advertising blitz, no one has fully addressed the core fundamental potential effect this compulsory ‘tax’ could have on the UK property market. Yes, a regional ‘dry-run’ of HIPs will take place, but effectively free of charge. The only way that any impact on the property market can be properly assessed, is if it is paid for. What is equally as worrying is the fact that the ‘dry run’ is not being organised by the ODPM or an independent third-party, but rather by the HIP providers, and therefore cannot be considered as in anyway independent or a fair test of the wider participants in the market.
Serious concerns
The National Association of Estate Agents (NAEA) has had a stab at quantifying the potential effect HIPs could have on the property market. Its recent research revealed that 73 per cent of UK home owners would think twice about marketing their home for sale as a result of the cost and delay caused by HIPs. If only a small percentage of that number saw that through, it would be a terrible blow to the housing market.
GMAC-RFC has serious concerns that HIPs may cause a similar, serious jolt to the mortgage market as was seen with the removal of double mortgage interest relief at source (MIRAS) in 1988. If this theory was to be realised, there is a good chance HIPs could affect the house buying market for years to come.
What is more, any additional further costs in addition to the extensive costs already borne by the buyer could cause the market to overheat during the first half of 2007 and then cool off dramatically.
So far not so good. HIPs seem to have been under researched and as a result the potential impact of HIPs has been underestimated.
Doom and gloom?
But is it all really doom and gloom? There is a strong argument that giving first-time buyers upfront a package of information that they would previously have had to wait weeks for, could be a major opportunity. However, as already mentioned a £800 ‘tax’ on the act of offering a property for sale could deter existing owner occupiers from putting their properties on the market, thereby increasing house prices further by reducing the supply.
There is also the pitfall of survey duplication to avoid, which could affect all buyers and possibly lenders. Until the government tests the acceptance of Home Condition Reports (HCRs), there is a significant chance that buyers as well as lenders will view the validity of surveys and legal work commissioned by vendors with cynicism, leading to duplication and adding yet another layer of cost to the whole house buying process. This is surely not a good basis on which to proceed.
Distorting competition
Perhaps an area that has been overlooked by the government is that HIPs could seriously distort lender competition. Many lenders may choose to offer to refund the cost of HIPs to existing borrowers who are purchasing another property, as long as they use that particular lender to finance the next purchase. This could lead to a decline in competition among lenders as this practice could favour the lenders with a large market share and push other smaller lenders out of the picture. This is not good for the industry and I doubt buyers will be more secure as a result of these changes to the market.
While most lenders and other professionals within the mortgage industry welcome the government’s move to try to protect house buyers from wasting money on failed property transactions, the vast majority are more concerned that the government is putting the property market at a huge risk, that, as of yet, has not been fully assessed by anyone. Until the theory of HIPs is tested in practice, involving a paid for ‘dry run’, no one will know prior to its implementation whether HIPs will need replacing in the future.
