HIPs

HIPs need a timetable

March 2006

How The introduction of Home Information Packs (HIPs) probably has greater potential to alter the shape of the industry than the launch of statutory mortgage regulation. New business relationships will emerge as firms explore different ways of delivering HIPs to the market.

It is impossible to make predictions at this stage, other than that all those working in the industry will be affected, to say nothing of the poor old consumer. So, why won’t the government do more to clear up the uncertainty?

Back in November, when it first announced its proposal to introduce HIPs in June 2007, we called on the government to publish a comprehensive timetable outlining progress towards implementation. That timetable needs to be detailed, so providers can shape the rules, and so systems can be built in the the confidence there will be no further changes.

As I write, three months have elapsed since the government announced its new implementation date – and there are only 15 months to go – but we have yet to see a detailed timetable.

Timetable contents

The timetable needs to spell out exactly how and when the databank of Home Condition Reports (HCRs) will be set up, and when detailed rules and regulations, the government’s plans for introducing qualified home inspectors, and proposed standards for technical and business processes will be published.

There are a number of other ways in which the government could help lenders and others in the industry prepare for HIPs. It could ensure that technological requirements for accessing any databank of HCRs are standardised. It could guarantee there will be no charges to lenders for access to the databank. It could encourage the development of a home inspector certification scheme as soon as possible and commit to contributing to start-up costs, if necessary. And, to realise the full potential of its plans, the government could liaise with the Land Registry on the complementary initiative of the introduction of e-conveyancing.

Government plans

We support the broad objective of improving the home-buying process and will continue to work with the government towards the successful introduction of HIPs. But in order to achieve this, we need not only a timetable of progress towards the implementation but details of the government’s plans for:

l A ‘dry run’ of the system, providing a robust test of the process from start to finish. In November 2004, former minister for housing and planning Keith Hill gave the industry an ‘absolute assurance that we will not bring this system in until we are absolutely clear it is going to work’.

l A study of the potential market impact of HIPs, focusing in particular on how property demand and supply will be affected in the months prior to and immediately after the introduction of packs.

l A rigorous cost-benefit analysis for the introduction of HIPs. Lenders and those working in other industries will incur costs, and so will consumers. Yes, there will be benefits from a more efficient means of buying and selling homes. But they need to be measured carefully against the costs.

Valuations

Among all the uncertainty about the government’s proposals, lenders have one clear message that must be heeded.

The introduction of HIPs will not change the fundamental requirement for a reliable valuation of the property providing security for a loan.

An independent valuation is essential for prudent lending, providing protection for both lenders and borrowers. Over time, HCRs may reduce the number of physical inspections lenders will need to make, depending on how robust they prove to be. Where this is possible, consumers should benefit from lower costs, which would help offset the higher transaction charges as a result of HIPs.

Ultimately, it will be for lenders to determine whether they require a physical inspection of a property or whether they are able to rely on a combination of the HCR and automated valuation models (AVMs), bearing in mind the over-riding need for prudent lending.

Some may choose not to use HCRs at all, preferring to carry out valuations as they do now, with or without AVMs. Others may decide to look at paper copies of HCRs to help them determine what type of valuation they need. And some might opt to make greater use of HCRs, perhaps sifting them electronically and applying AVMs to properties with good condition ratings.

Clarity of details

While continuing to work with the government on its plans for HIPs, we must also continue to express lenders’ concerns about the timeliness of the proposals and the need for greater clarity on the details. We will also work with other professionals who have concerns similar to our own. Recently, for example, house-builders echoed our request for a proper trial to ‘road-test’ HIPs. And we support their view that consumers must not become the ‘unintended losers’ of a scheme originally set up to serve their interests.