The times they are a-changing. From June 1, 2007, homeowners or their selling agents will have to produce a Home Information Pack (Hip) before putting a house on the market. Hips will contain all the information needed for a property transaction: terms of sale, legal searches and title deeds and a home condition report (HCR). The principles behind this reform are excellent: to better inform people about the home they are thinking of buying; to cut the time lag between offer and exchange of contracts; and to help prevent transactions collapsing.
The spin from Westminster is that Hips will bring transparency and liquidity to the market. That should be music to our ears, since 30% of agreed deals collapse before exchange and the government alleges that £1m a day is wasted on aborted legal fees, surveys and searches. So why is the National Association of Estate Agents so vocal about the dangers of Hips? Why did the Royal Institution of Chartered Surveyors, which has consistently supported the principles behind them, say a fortnight ago that it was “increasingly concerned”? Surely, if the legislation achieved all it said it would, everybody would be thrilled? Why isn’t there universal delight? For as well as industry unhappiness, there is political opposition. The Tories have fought it all the way, and the Lib Dems don’t like it either. What are the problems? There are plenty.
Hips have been grossly oversold by the Office of the Deputy Prime Minister (ODPM). It wants the credit for solving existing problems, but has so little knowledge or understanding of the process of buying and selling property that the legislation is unworkable. Either the government doesn’t care or it just isn’t listening, even though the holes in its plan are being exposed by one and all. The industry realises that Hips will have a hugely detrimental impact on the housing market in England and Wales.
We do have an inefficient way of buying and selling homes, and I don’t know anyone who doesn’t support reform. There must be greater transparency and the process must be speeded up — but Hips as they stand won’t achieve this. For starters, the extra costs will outweigh any possible benefits.
They say that by cutting down on failed transactions, and the losses incurred as a result of uncommitted sellers — £365m a year, by the government’s calculations — money will be saved. In some areas, that’s arguably true. But despite protestations to the contrary by housing minister Yvette Cooper, the Council of Mortgage Lenders (CML) has made it very clear that it will not accept a seller’s report: a valuation will still have to be obtained, paid for by the potential buyer. So much for reducing waste. Even if the CML had a change of heart, not one insurer to date is prepared to offer cover for purchasers who rely on an HCR.
The reports will be prepared by fully trained home inspectors, and 7,500 of these will be needed in the first year. It takes two years to qualify from scratch to become one, and as only 2,000 have signed up so far, things are looking tight already. Given that the Tories say Hips are a barrier to greater home ownership and that they’ll abandon them if they win the next election, investing in training seems brave.
It will take up to a fortnight for a report to be done, and thus for a Hip to be prepared. Fears that delays could be far longer because there won’t be enough inspectors were met last week by the government’s response that exemptions could be applied for if a report was going to take longer than two weeks, and a property could be marketed without one. Surely this defeats the entire purpose of the legislation? And it smacks of policy on the run. Moreover, any delay in putting up a house for sale is bound to restrict the supply of property to the market, forcing prices up even further, and that is the last thing we need.
We’re having a little taste of things to come right now: it’s a seller’s market simply because demand is outstripping supply. Although agents are being vocal about the impact of less property on the market as a result of Hips, this is not — believe it or not — because they are concerned about turnovers and their commission levels. There will always be houses for agents to sell. The far more important issue is that a smaller supply means higher prices and that hits everyone.
There is also the potential security risk. It’s an awful lot of information about your home to hand over to complete strangers. Agents will be obliged to provide a pack to any potential buyer: that’s anyone who walks in off the street and takes two minutes to register with them. Who will check that a “potential buyer” is bona fide? Basically, it’s Christmas for burglars. Scribble some false ID on a piece of paper and an agent will hand over floor plans and information about entrance and exit points.
And what about shelf-life? Surveys and searches are date-sensitive; smart buyers won’t rely on information more than three months old. What happens if a property marketed in the summer remains unsold over winter and the agent organises a new marketing push in the spring? Will the vendor have to shell out for another Hip or is the buyer expected to rely on information that is the best part of a year old? The ODPM refuses to address this.
The legislation places no obligation on buyers to be prepared and ready to do a deal, nor does it address the re-emerging problem of gazumping.
It will be a civil offence to market a property without a completed Hip. Private sellers face a £200 fine, while an agent that persistently markets without them risks being banned. The Office of Fair Trading has the unenviable task of policing this.
So what do I think would work? A voluntary scheme of best practice. A seller and their solicitor could produce a CD with all the documents normally required to exchange contracts. Interested buyers could buy the CD. Let’s face it: a report or survey commissioned and paid for by the vendor is never going to be considered a legitimate, independent source of information, either by the purchaser or their mortgage company. Has anyone seriously looked into the possibility of including a mortgage valuation certificate and a proper survey (conducted by a qualified surveyor, mind, not a home inspector) in the pack (and adequately insured)? It would still be voluntary, but perhaps it’s worth looking at. The survey could be paid for by the purchaser if the sale proved successful, and by the vendor if, say, three months went by.
The only advocates of Hips are those set to make vast amounts of money training home inspectors and providing the packs. The Consumers’ Association, which wages an extraordinary battle against estate agents and the government — in the shape of the ODPM — is incapable of admitting that it has made a mistake, or getting off its high horse for long enough to talk to the industry about how to improve Hips.
There is to be an official “dry run”, starting in Cambridge in June. So far, nothing has been said about who will run it or assess it. We will only know just how well Hips are likely to work once the trial period is complete, but will it be too late then to do anything about them? Will the ODPM listen? Does it care? Not if its current attitude is anything to go by.
I believe that forcing all sellers to produce a Hip is actually detrimental. It will bury the property market in an avalanche of paperwork and will ultimately fail to improve the home-buying process.
Phil Spencer runs Garrington Home Finders, 020 7349 7030, www.garrington.co.uk, and presents Channel 4’s Location, Location, Location, and Relocation, Relocation
