One of the most controversial pieces of legislation to influence the housing market has finally come to fruition, albeit in diluted form. Duncan Samuel relives the more recent part of the HIP journey
The advent of Home Information Packs (HIPs) must have commanded the greatest space in the financial press over the past year. More coverage even than the great summer floods. Why this should be so, I am not quite sure.
When the policy was first mooted it caused ner a ripple in the personal finance press pool. By the time we had reached August when the (watered down) policy was introduced we had to wade through a deluge of words associated with the new law's introduction. This seems an apposite time to recap and see how we got from a position where the primary objective of the scheme was to speed up the house selling process to today where even the Association of Home Information Pack Providers (AHIPP) is calling the present position a real muddle.
The concept behind HIPs was quite straightforward. It was believed that by providing residential property buyers with all the information they needed about a home without needing to employ solicitors to carry out any searches, it would speed up the process and prevent many deals failing at a late stage. Each pack would include a Home Condition Report (HCR), Energy Performance Certificate (EPC) and title deeds as well as planning searches. It would be the responsibility of the vendor to supply this information. The government also believed that HIPs and EPCs can help families to save hundreds of pounds on their fuel bills and cut a million tonnes of carbon a year. But not everyone was convinced.
Anti-HIPs
Key among the vanguard of the HIP deniers was the Royal Institute of Chartered Surveyors (RICS). It was they whose application for a judicial review in May effectively delayed the implementation of HIPs. The RICS was backed up by the Conservative Party and it culminated in a House of Lords vote on HIPs on July 18 which ended with 186 peers backing a non-fatal motion by Baroness Hanham, Conservative shadow minister for the Home Office, calling for the packs to be scrapped.
But because the vote was non-fatal it could not force the government to reconsider HIPs. The same month the Conservative Party lost its last-ditch attempt to scupper the packs after the House of Commons voted against scrapping them.
Domestic energy assessors
The key argument utilised by most of the HIP detractors was that there were not enough domestic energy assessors (DEAs) to meet demand. This was the main reason why the government delayed the launch of HIPs to 1 August and watered them down so only homes with four bedrooms or more required them. The packs - having seen a two-month delay from the original date for introduction of 1 June - were subsequently introduced at the beginning of August only for properties with four bedrooms or more. A date of 10 September was set for an extension of HIPs to cover properties with three bedrooms, which accounts for over 60 per cent of the housing market, and it is expected to be widened to cover another 6.4 million smaller homes by the end of the year.
The latest figures from the Department for Communities and Local Government (DCLG) has revealed there are 1,340 accredited energy assessors - up from 520 in May and a step closer to the 3,000 needed to introduce HIPs to the whole market. The Association of Home Information Pack Providers says this means HIPs could be extended to the whole market by as early as October this year.
HCRs and EPCs
The most glaring example of 'watering down' was the withdrawal of Home Condition Reports from the pack and this led to the coining of the term 'HIP-lite'. There's no doubt the HCR was the HIP's chunkiest element and would have been the most useful to prospective buyers. But that does not mean that HIPs are now without merit.
Energy Performance Certificates and searches now form the meat of the pack, although some continue to argue about their benefits to the UK housing market.
Searches
Each year there are over 1.5 million local authority searches carried out on properties in the UK. Before HIPs, around four in every ten searches were performed by personal search agents, commissioned by solicitors. This is known as a personal search. Now, with the advent of the HIP, almost all are expected to be personal searches carried out by companies providing HIPs - commissioned by the provider of the HIP.
There has been some recent publicity where it has been alleged that the biggest lenders, HSBC and Barclays, will be refusing to accept personal searches, which they were very quick to rebut. The fact is that most lenders accept personal searches, and have done for some time. After all, 50 per cent of all local authority searches are already done by personal search organisations and there is no problem with the reliability of personal searches of local authority information, as opposed to information supplied directly by the council in response to a solicitor's request.
In 2006 solicitors commissioned over 650,000 personal searches on behalf of their clients, providing a genuine cost-effective alternative to the official search. What has changed is the assignment of the risk of the search. Previously it was normal for the lender to allow the solicitor to commission a search at their risk, and it was up to the solicitor to ensure that the personal search agent had adequate insurance in place so that any claim could be passed across.
Where the search is performed by a personal search agent for a HIP provider who is commissioned by a seller, the HIP provider has no direct contractual relationship with the lender, and this chain of potential liability is broken. That is why the HIP legislation also brought in a stringent code of practice for personal search companies and they must have insurance cover in place for the searches they provide.
The Council of Mortgage Lenders (CML) has backed this position, saying: "Lenders have agreed that as long as the property search organisation is a member of the Council of Property Search Organisations then the lenders will accept that search."
The best HIPs will have their own built-in safeguards where all parties to the process offer their own insurance on each element they provide. The most stringent will also have taken further professional indemnity insurance to ensure that the overall pack is indemnified against errors. The information pack itself should also be printed in a manner that prevents fraud. This should include wiro binding and a watermark on each page. Even the PDFs provided to clients online should be locked and rendered unprintable.
Lenders' underwriting departments are moving toward accepting insurance on personal searches as standard. It has been claimed by some that the majority of mortgage lenders will not accept a personal search due to restrictions in the CML Handbook. In reality the CML has been working with the DCLG for a number of years to assist in the regulation surrounding HIPs and on 1 June 2007 the CML made amendments to the handbook allowing for lenders to decide whether or not to accept personal searches. Recent research carried out by Promise Finance reveals that 95 lenders are committed to accepting personal searches. This figure includes nine out of the top 10 lenders who provide around 75 per cent of all mortgages in the UK.
Our experience too is that lenders are happy to accept personal searches. Clearly some solicitors feel threatened by the advent of HIPs as it will affect their income stream and are out to rubbish the new regime. The lending community, contrary to many press reports, recognises its worth. And why should it not?
The local authority search has been a compulsory feature of the conveyancing process since 1925. It involves a buyer, or their solicitor or other representative, asking a set of standard questions about a property, covering local authority plans for the street or area, and any planning permission granted for the building. This should also show up any restrictions on the way the property can be used, for instance the existence of smoke control orders, conservation areas, tree preservation orders and any financial charges where the council could recover money owed to it. Additional information can also be gleaned at the same time about neighbouring properties. The aim is to make sure that the buyer does not get a nasty surprise once they have bought the house or flat. We all must make a stand for the use of personal searches as a cost-effective and efficient way of obtaining the information required not only to comply with HIP regulations but also to be used as part of the conveyancing process.
Estate agencies
There was also sustained opposition from the estate agency sector and its trade body the National Association of Estate Agents, in particular. The crux of its argument was that estate agents were not ready for Home Information Packs. Strange, given that they, in common with the RICS, knew for years about their intended introduction. More worrying is AHIPP decrying the disjointed introduction of HIPs. However, this has nothing to do with the merits of the policy itself, simply the way the policy has been implemented and the confusion that this caused in the marketplace.
For, despite the dire warnings from some pundits, thus far we have seen the smooth implementation of HIPs for four-bedroom properties. Surprisingly, the new process has been introduced without hitches and I am delighted to say that some components of the pack are not taking nearly as long to compile as some 'doom-mongers' forecast, with EPCs taking as little as 24 to 48 hours to turn around.
Consumers, once they are fully aware of the purpose of these packs, have been very positive about their introduction. This situation has been replicated when three-bedroom properties came into the scheme in September, bringing a critical mass of properties under the legislation. This should finally put paid to any doubts in the industry over the government's commitment to making HIPs happen. This will be the boost that the intermediary market place needs to take HIPs seriously.
Brokers
Understandably, brokers have been hesitant about getting into the market as they have been unclear about whether HIPs would go ahead, but now they need to make sure they are ready to supply their clients with HIPs so as not to lose out on business to estate agents. Brokers should be looking to ally with a HIP provider, white label their own service or even enter into a joint partnership with an estate agency.
When HIPs were first conceived it was assumed that estate agents, as the first port of call for sellers, would arrange HIPs and have a good chance of arranging the financial services that would go alongside customers' next purchases. That doesn't appear to have happened, so far. This provides a tremendous opportunity for the broking sector. Brokers have a chance to steal the show. They must embrace HIPs. Sellers will have a statutory need for them and someone has to satisfy that need and it might as well be mortgage brokers.
From a purely business point of view, brokers would be foolish not to offer HIPs. First, any activity that helps customers will enhance the business relationship between brokers and clients. Obviously the more products a client buys from one company, the more likely they are to make further purchases from that firm. And where a firm arranges the HIP it will be at the forefront of clients' thinking when it comes to mortgages for their next properties. Finally, there is money to be made from the sale of HIPs.
When looking at mortgage sales, brokers must appreciate customers' total needs. Yes, mortgages are the primary need but customers might also require solicitors, buildings insurance, contents insurance, protection insurance and, of course, HIPs.
So brokers need to get in on the act. The advice that brokers should be giving sellers and buyers is to ensure that they talk with their local agent and shop around for those companies who are able to provide a value-for-money service while maintaining the quality standards expected from property industry professionals without charging extra. HIPs add transparency and speed up the conveyancing process. For that reason alone their widespread introduction should be welcomed and embraced by the industry.
Duncan Samuel is managing director of Convex Conveyancing
Date: 19th, September, 2007
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