HIP time ahead for housing market

Home Information Packs (HIPs), or sellers' packs as they are more widely known, will become mandatory for all house sellers from 1 June 2007. Thus house prices could easily fall during the first half of next year, the logical economic result of supply exceeding demand. Properties will crowd the market as sellers try to achieve their objective before incurring the extra expense of funding a HIP; meanwhile buyers will hang back, waiting for the deadline to rid them of unnecessary expenditure on house valuations, legal advice and searches, which frequently is wasted when deals break down. After that they may face prices increased by £1,000 or more as sellers pass on their costs.

On the other hand, the rush to sell could be tempered by a fall off in properties that are just "testing the water". The Council of Mortgage Lenders (CML) estimates that around 30% of houses advertised for sale at any given time fall into this category. Many owners are subsequently encouraged to sell by buyer reaction; if the cost of a HIP is involved the water might not be considered worth testing in the first place.

The CML believes this situation could lead to reduced market liquidity, a decline in the number of property transactions and of, ultimately, house prices. No, argues the National Association of Estate Agents; in fact, the opposite. Spokesman Nick Salmon was reported as saying that HIPs are not a magic cure, but a Government con. "It will be an expensive disaster for everyone except the commercial enterprises that have set up to cash in on this new annual £1 billion market.

"There will be a 30% reduction in the number of properties. That reduction in supply will cause massive house price inflation."

Putting together a HIP is expected to cost between £600-£1,000 +VAT. Why is it needed and what's involved? The Government is concerned to reform the home buying and selling process. It maintains £1 million a day is wasted by consumers on fruitless house transactions. As Housing Minister Yvette Cooper said when announcing the 1 June 2007 implementation date last November, "Too many sales fall through because of delays and late information, wasting money and causing great stress for buyers and sellers."

The content of a HIP will include searches, an energy audit and other information currently paid for by the house buyer. Its most important item, though, will be the Home Condition Report (HCR), an objective assessment of the property's condition that buyers, sellers and lenders will have a legal right to rely on. This will account for some £300 (average home) of the overall HIP cost.

Only inspectors qualifying under a certification scheme approved by the Secretary of State will be able to prepare HCRs. So far, the Government reports, seven assessment centres have been established and some 1,700 people from surveying and property industry backgrounds are undergoing training for Home Inspector qualification. It is expected, as of 1 June 2007, that more than 5,000 will be required.

A "dry run" of the certification scheme is planned for later this year, designed to "provide assurance to the industry and the public in advance of mandatory introduction on 1 June 2007."

The major cost benefit of a HIP is that it obviates the search /surveying fees etc being paid several times over by as many buyers pursuing the same home. The Government believes the housing market will become more efficient and certain. First time buyers will benefit from full information without having to pay for it. Critics argue that HIPs will not resolve the usual house moving problems and could worsen the situation. It has been argued that as upwards of 900,000 properties go unsold on the market each year, then some £600 million will be wasted on these sellers' packs.

The CML maintains history could repeat itself. The withdrawal of double mortgage interest relief in 1988 and the eight-month moratorium on stamp duty in 1991 both triggered deadline-beating house sales; activity reached a high and then slumped. House valuation (or lack of it, as the HIP will not provide this) is another cause for concern. Lenders will continue to request valuations and potential purchasers presumably will meet the cost of these. The CML has called on the Government to dispel the myth that HCRs would remove the need for lenders to carry out their own valuations, although conceding that sufficiently robust reports may eventually lead to fewer physical valuations being required.

As for gazumping, it is said in some quarters that there will be many more incidents of this shoddy behaviour. This because all relevant information will be readily available to anyone wishing to make a counterbid at the last moment.

There is still pressure by estate agencies and other interests on the Government to do a U-turn on HIPs and it should be noted that although the Housing Act 2004 mooted the requirement for sellers' packs by 1 June 2007, further regulation is required for enaction.

It is unlikely, however, that HIPs will be abandoned. Independent research by Which? produced an 80% plus "in favour" response from consumers and companies are already coming into the market offering "buy now, pay later" HIP deals.

02 March 2006 © Moneyextra.com

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