HIPs

Richard Griffiths discusses who is likely to be involved in providing HIPs

March 2006

However, given the recent volte-face concerning residential properties being included in Self Invested Personal Pensions, there must be a question mark over the determination of the government to stick to this date.

Be that as it may, until such time as the government formally announces a postponement or cancellation of the HIPs legislation, the main players in the market will continue to develop their propositions and work towards the June date.

This is no place for the faint-hearted. You cannot become a major provider of HIPs by sticking your toe in the water. You either jump in with both feet, now, or stand back and watch the action from the sidelines.

Providers

There are over 50 firms registered at Companies House with the words ‘Home Information Pack’ or ‘HIP’ in their name, and more would-be HIPs providers that prefer to use a trading name rather than register as a limited or plc company.

Outside of the handful of major estate agency chains that will organise their own in-house service, I doubt whether there will be more than six or so major independent HIPs providers by the end of 2007.

IT challenges

The barriers to entry are very high. A massive investment in IT is required in order to cope with high volumes of business from day one. Make no mistake; this is going to develop into a commodity market with high volumes/low prices being the name of the game.

There are formidable challenges in developing the technology needed to provide an end-to-end solution from receiving a HIP order to its fulfilment and electronic delivery. While there may be software components that can be bought off the shelf from third-party suppliers, it is not simply a case of ‘bolting’ them together and, hey presto, you’ve got a robust all-singing all-dancing piece of technology that actually works.

Mortgage market

As for the impact of HIPs on the mortgage market, I do not subscribe to the theory that HIPs will result in estate agents gaining a larger share of the financial services (FS) market, i.e. mortgage, general insurance and life assurance.

Provided mortgage brokers position themselves correctly I believe they will put themselves in pole position, lead from the front, and increase the level of broker introduced business to mortgage lenders from its current figure of 70 per cent of all mortgages.

Estate agents

The reasoning behind my view that HIPs will not be detrimental to the interests of mortgage brokers is very simple. What do you think estate agents do now? What do you think they have they been doing for the past 20 years or more? They have always been the first port of call for the home vendor, and estate agents have always had the first opportunity to enquire about providing FS to the home seller.

The fact is if estate agents wanted to grab the FS business they would already be doing so now. Why should the introduction of HIPs cause them to suddenly take an interest in FS if they haven’t done so in the past?

If anything, the added burden of HIPs on estate agents may have the opposite effect. Estate agents simply haven’t got the time or the vendor client is already suffering from information overload on HIPs before the estate agents can turn their thoughts to FS.

Also, vendors will be talking to the house negotiators within the estate agency, not the mortgage advisers. In fact, very few estate agents have the foresight to talk to vendors about FS; this tends to be reserved for the potential buyers.

The impact of HIPs on the market will emanate from the fact that the HIP can contain a separate section on financial services and can, for example, contain a mortgage certificate, illustration for household insurance and offer of a conveyancing service.

Brokers

For brokers, being able to offer a HIP to their clients and potential clients will be a no-brainer. HIPs providers will be more than pleased to deal with brokers, and lenders, as distributors or resellers of their products, perhaps on a white-labelled basis for volume accounts.

Brokers should be far more concerned about getting their contact details included in the HIP. Don’t forget that the HIP must be prepared before a property can be put up for sale and it may be weeks or even months before the eventual buyer appears on the scene.

Brokers need to set up an arrangement with a preferred HIP provider to ensure their details are automatically included in each HIP. The objective should be to attract enquiries from the potential buyers that read the HIP, even if they end up buying another property. In reality, this is what will happen to most buyers, given that there will at least three or four potential buyers for each property sold.

Lenders, likewise, should be examining ways in which their name can be associated with the mortgage certificates included within the HIPs. This will inevitably mean doing a deal with the HIP provider, who is likely to look for an exclusive sponsorship deal with a single lender for a defined period of time.

In some ways, this can be compared with sponsorship of football shirts; Newcastle United and Northern Rock being an obvious example.

As for the broker, why should he be concerned about the name of the lender attached to the mortgage certificate as long as his details are shown as the point of contact?

It may be difficult for the lender to attribute sales directly to this type of sponsorship, but the same can be said for most types of advertising or investment in brand awareness.