HIPs

House-buying to be fast, simple and secure

July 2006

Not everyone is positive about the future of HIPs. A number of lenders have expressed concern that they will have a devastating effect on the property market: if the research from the National Association of Estate Agents (NAEA) is to be believed, 73 per cent of homeowners would think twice about marketing their property due to the extra cost and inconvenience of the HIP.

Others are concerned at the cost of the packs at £800 each – seeing it as yet another government stealth tax. With estate agents looking to become the most obvious provider of choice (either directly or indirectly), there are also understandable concerns in the eyes of the buyer and lender over the independence of the information contained within each pack.

Within all this confusion and debate sit the title insurers, acknowledged by the government as having a significant role to play in the success of the packs. But what is the role of this little-known and even less understood form of insurance in HIPs?

As part of the pack, the title-insurance policy guarantees the title and ownership rights of the buyer’s property upon completion. The cover remains active for the lifetime of their property ownership and a new policy would only be required by that owner when they decide to purchase a new property.

Speed and security

The potential benefits of title insurance in the packs are twofold: speed and security. As traditionally acknowledged by lenders and conveyancers, title insurance speeds up the property sale process by replacing the need for searches and detailed title investigation. The ability to complete in just a matter of weeks rather than months has a very tangible appeal to all in the property transaction process.

Title insurance will undoubtedly make transactions faster and simpler, and we believe that by including title insurance the government fully understands and supports the need to protect the homebuyer wherever possible. HIPs aim to reduce the risk and stress associated with any property transaction; L&E’s title insurance guarantees that should a title defect be discovered (boundary disputes, defective leases or rights of way issues), it will either be remedied in less than six months or the claim will be paid in full, up to the limit of indemnity of £500,000.

Title Insurance will help to allay some of the key concerns over the viability of the packs, namely lifespan, affordability and credibility. After all, the benefits of HIPs will only be realised if their application, and the information they provide is deemed to be robust, independent and secure.

• Lifespan and affordability: Each pack will typically have a limited lifespan – the seller may need to renew certain elements of the pack if the transaction is delayed more than a few months, such as local authority searches. For the seller, this is an expensive prospect. A title insurance policy will remove the need for further searches to be done – just as it does in the case of a remortgage. This prolongs the life of the pack and enhances the security of the buyer.
• Credibility: According to the government, buyers, sellers and lenders will have a contractual right to rely on HIPs; but 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.
• In the US, estate agents are regulated, and should any information in the pack prove to be false, then the buyer has direct legal recourse; if implemented in the UK this practice could go a long way to improving customer confidence. However, with a title insurance policy in the pack, the purchaser can be assured that their title is guaranteed, i.e. their ownership is free from any encumbrances, claims, and denial of rights belonging to or assertions of rights over their property. Also, while searches may flag up potential title defects, they can’t guarantee the security of title – local authorities and even HM Land Registry have been known to make mistakes in the information they supply.

Early evidence of the success of information packs in regional trials has been encouraging. If the national dry run proves successful and the official government launch date next year goes ahead as planned, then there should be a positive future for HIPs in the UK.

Partnership

Spring, however, will be offering more than just a HIP – its unique offering will be a complete pack of information including all searches and legal interpretation, as well as a guaranteed title. As such it will be consumer friendly – its speed and clarity will offer buyers the opportunity to exchange within 24 hours of making an offer!

Christian Bearman is sales director at London & European