ContraTory :: The Great HIPs Fraud

The Great Home Information Pack (HIPs) Swindle

The SPLINTA Fact Sheet

The Home Information Pack is being promoted by the Office of the Deputy Prime Minister.

COSTS

The Home Information Pack (formerly the Sellers' Pack) will comprise a bundle of legal documentation (deeds; searches; lease; service charges etc) relating to the residential property coming on the market. It will also contain a mini-survey called a Home Condition Report and an Energy Efficiency Report, to comply with a directive from Brussels. It will cost on average £635. In metropolitan areas the likely average cost is over £1,000. The Home Condition Report will not give the buyer any indication of the cost of necessary repairs so further inspections will have to be commissioned at more expense.

DELAYS

Sellers will have to wait until the HIP is assembled before any marketing of the property can commence. The enforced delay of up to two weeks will be highly unpopular where a seller has found a property to buy and is in a hurry to find a buyer for their own.

FAILED TRANSACTIONS

The government say that 28% of all sales fall through between acceptance of offer and exchange of contracts and that most the failures are caused by an unexpected bad survey. However they lump together surveys and mortgage valuation inspections. 'Surveys' account for less than 4% of all failed sales. 9% of failures are caused by mortgage valuation inspections that say the property is unsuitable for lending the buyer the amount they want. The HIP will not contain a valuation and so will not deal with this issue. The Council of Mortgage Lenders has stated that separate valuation inspections will still be required after HIPs come in.

Most failed sales are caused by people changing their minds; sellers not finding a property to move to; or buyers changing their minds. The HIP will not deal with these issues.

ABORTIVE COSTS

The government say that consumers waste £350 million a year in abortive costs caused by failed transactions. The £350 million figure was arrived at in the government's 1998 research document 'Key Research into Easier Home Buying and Selling' and was deduced by analysing less than 30 failed transactions. This is a statistically negligible number when set against the

1.3 million transactions taking place each year. Further, in 1998 most conveyancing solicitors charged for abortive costs and this practice has by and large ceased in the last 8 years. The abortive cost figure is therefore highly questionable.

NO SHELF LIFE

The HIP contents will have no shelf life and will quickly become out-of-date. Consumers will then have to pay for the documents to be updated. No prudent buyer will rely upon a survey that could have been carried out months before they have seen the property. The Law Society recently issued a statement saying that the Pack should carry a 'health warning' against buyers relying on its content without seeking professional advice.

CONSUMERS TO PAY EXTRA £600 MILLION EACH YEAR The government say that HIPs are broadly 'cost-neutral' because most sellers are also buyers. But the HIP is imposing the obligation for every seller to have a Pack and the Home Condition Report contained in it will cost consumers an EXTRA £600 million every year.

A MESSAGE FROM KIRSTIE ALLSOPP & PHIL SPENCER

Kirstie and Phil co-present the highly popular Channel 4 show:

Location, Location, Location;

Dear Home Seller or Buyer.

The firm sending you this letter wants you to be made aware of an important new law that may come in to force next year. It's a law that could have a devastating effect on the property market and which could cost you a great deal of money.

From June 2007 the government intends to force all home sellers to produce a Home Information Pack (HIP). It will contain a variety of legal documents such as a copy of the title deeds, a survey called a Home Condition Report, and an Energy Efficiency Report to show how effectively your home is insulated. The average cost of a pack is estimated at £635 and in cities the figure will be closer to £1,000. Anyone will be able to ask to see your Pack, whether or not they want to buy your property. The government thinks this is a great scheme but we believe that the HIP is bad news for you, the consumer. It could ruin the property market, and will fail to significantly improve the home buying process.

The additional costs will outweigh any possible benefits. Faced with the liability for the cost of the HIP, up to 30% of sellers will not come to the market each year. This reduction of supply will lead to intense upward pressure on prices and reduce the choice of properties for buyers.

You or your estate agent will no longer be able to immediately market your home as there will be an enforced delay of up to two weeks while the HIP is prepared. It will be just too bad if you are anxious to sell because you have found an alternative to purchase.

The HIP will have no shelf life so if your property fails to sell in a short period of time the content will become out of date requiring further expenditure to update the documents. No sensible buyer is going to rely on a survey report that is more than three months old but any listed defects will most likely put people off even coming to view your home. There is no obligation on building societies and banks to accept the HIP content. The Council of Mortgage Lenders has confirmed that buyers will still face the cost of separate valuation inspections and that means sales will still fall through because the buyer cannot get a mortgage.

Gazumping, gazundering, chains, and the fact that sales fall through because people simply change their minds, will, sadly, all still be facts of property life after HIPs comes into force.

We would like to see cost-effective changes made that would really improve the home buying process but the Home Information Pack is just not it. The only people who will benefit from these packs are the companies that will make a fortune out of compiling them - and the government who will get hundreds of millions of pounds each year in extra Vat revenue.

These are the reasons why we are supporting the campaign group SPLINTA that has called upon the government to stop the implementation of this potentially disastrous measure.

You can help the campaign by writing to your Member of Parliament, telling them that you don't want HIPs brought in. You'll find out who your MP is by looking at this website: http://www.locata.co.uk/commons/

If you would like to know more about HIPs and SPLINTA and to sign up in support of the campaign, have a look at this website: www.splintacampaign.co.uk

The Home Information Pack will be expensive and will fail to deal with the real causes of stress and delay in the home buying process. You can help us to stop it happening.

Yours sincerely

Kirstie Allsopp

Phil Spencer

Further Reading

On the 2^nd April 2006 Phil Spencer wrote an article about Home Information Packs in The Sunday Times. The basic premise of the article is that Home Information Packs will do more harm than good notwithstanding HM Government’s groundless argument that they will “speed up the buying process.” The full article can be found here. This comment struck home for me (the emphasis is mine): -

“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.”

How very true, on all counts.

The Council of Mortgage Lenders (CML) has reservations too

Mortgage lenders do not have any political axe to grind so check out the site CML website here. I recommend reading the documents entitled “Brief Note on Valuation” and “How disruptive will HIPs be?” which are most informative.

From the Law Society’s website (posted 30.05.06)

Consumers unaware of HIPs implementation

New research shows most people are totally unaware of the biggest ever shake-up of the property market which is only one year away. Sixty four percent of people questioned by ICM have never heard of the term "home information pack" (HIP). Only one in three people who are aware of HIPs realises that the packs will contain important legal documents – including title documents and local searches.

Trustworthiness was the most important factor in choosing a HIP provider. Almost 60 per cent of respondents said they would be most likely to trust a solicitor to prepare the pack and 70 percent said they would rely on their solicitor to interpret the information contained in the HIP.

Anyone marketing their property for sale after 1 June 2007 faces a fine of £200 per day if they do not provide potential buyers with a HIP. Sellers must pay the cost of producing HIPs which could range from £600-£3,000, depending on the size of the property.

Commenting on the results Kevin Martin, Law Society President, said: “This survey also shows that few people realise that packs will contain important legal documents. The danger is the public may be vulnerable if they obtain a pack from a HIP provider that is uninsured, unregulated and not legally trained. Solicitors are insured, undergo rigorous training and education and are the only provider to be regulated by a national body, should anything go wrong.”

“The results show a huge lack of public awareness and with only twelve months to go there is real cause for concern. A huge campaign is needed to educate homeowners about this massive overhaul to the home buying process. There’s a real risk that people will find themselves breaking the law if they market their property without the correct information.”

“It is important that consumers can interpret the legal documents in the packs. From the outset, buyers and sellers must get good quality and independent legal advice from their solicitor.”

To bridge the information gap the Law Society has launched the essential HIPS Q&A document for consumers.

The Law Society’s Questions and Answers about HIPs

Just click here.

The Law Society concerned

HIPs regulations alert as consumers 'at risk'

Thursday 22 June 2006

The government’s long-awaited regulations prescribing the contents of home information packs (HIPs) have ‘serious defects’ which could leave consumers at risk, the Law Society has warned.

The regulations, which were published last week, set out those items the packs must include – such as the home condition report (HCR), searches and an energy performance certificate – as well as ‘authorised’ documents they may contain. No advertising or other unauthorised documents will be permitted in the packs.

The regulations close a potential loophole by making provision for a transition period for homes that are already on the market before HIPs come into force on 1 June 2007. This gives sellers five months’ grace – if their homes remain unsold by 31 October, they will need to provide a HIP, or become liable for a £200 fine. Previously, it was thought that they were permanently exempted from having to produce a pack.

Another significant change is that the format of the new documents is no longer to be prescribed by the Department for Communities and Local Government, but left up to individual pack providers. Housing minister Yvette Cooper said the government’s aim was to encourage greater competition and transparency in the home-buying process and provide people with proper information at the beginning of the process. She dismissed opponents of the new scheme as people with ‘vested interests who make money out of the current system and who are opposed to reform’, emphasising that HIPs were about getting a better deal for the consumer.

The government also published the certification scheme standards, establishing the requirements to be met by home inspectors who will complete the HCR. They will require indemnity insurance so that buyers, sellers and lenders can rely on the report. The scheme will also include independent redress against home inspectors when things go wrong.

However, Law Society President Kevin Martin warned that ‘there are still some serious defects’ with the regulations, such as the lack of a provision for information within the HIP or the HIP itself to be authenticated or confirmed by the seller. He added that the Society still has concerns about the training and regulation of home inspectors, and called for the establishment of a ‘strong regulatory regime’.

‘We still believe there should be a warning that reinforces to the buyer the risk of taking on substantial liabilities and commitments without the benefit of independent advice – without the warning the consumer is seriously at risk,’ Mr Martin said.

Rob Hailstone, chief executive of pack providers HIPAG, welcomed the regulations. He said: ‘They don’t give us the answers to all the challenges, but they do give us something substantial to work with.’

Reporter(s): Catherine Baksi

Michael Gove's Early Day Motion (June 2006) concerning Home Information Packs

That this House expresses concern over the introduction of home information packs from 2007; notes that industry experts have advised that home information packs will add up to £1,000 to the cost of buying an average home and duplicate the ongoing need for a valuation or structural survey; believes that they will discourage potential sellers from putting their homes on the market; notes that smaller solicitors and estate agents may be adversely affected; observes that the Government will benefit from a potential £110 million VAT windfall from the packs and that the Home Condition Register could be used to conduct a council tax revaluation by stealth; questions the lack of a proper dry run and whether sufficient home inspectors will be properly trained by 2007; and calls on the Chancellor of the Exchequer to push for their implementation to be delayed or cancelled in order to protect the stability of the housing market.

Note: This EDM has received cross-party support.