It is widely accepted that Home Information Pack Regulations were poorly drawn and not implemented in a clean and proper fashion. It is also conceded by many within the property industry that that the main objectives behind the legislation of saving millions of pounds of abortive transaction costs as well as speeding up the home selling and buying process may not have yet been fully fulfilled.
It is not therefore surprising that there are many property professionals out there who hold certain views on the benefit or otherwise of the HIP. Some argue for instance that the HIP represents an unnecessary and costly lay of bureaucracy. Indeed this is the view of the Conservative Party that has and continues to call for the scrapping of the HIP. AHIPP and other property industry stakeholders however argue that the legislation has brought about long overdue changes to an antiquated home selling and buying process ( that was last overhauled in 1925), as well as paving the way for further improvement.
AHIPP and the HIP Industry
AHIPP represents the views of the HIP industry that in the main comprise property professionals, such as solicitors, personal search agents, estate agents and those working in the field of energy. Its members also include large financial institutions, such as Aviva PLC, Lloyds Bank and Close Brothers.
There are around 10,000 people working within the industry and since its inception in 2007 it has accumulated a value of between 300 and 500 million pounds. Its members make major contributions to both local and national economies in terms of employing people, mainly young people in the field of customer support and information technology, and financial. It is estimated that the industry generates each year around 44 million pounds of VAT, which in the event of VAT increasing to 17.5%, would rise to 51 million pounds.
The industry is not only an employer and contributor to the public purse, but is also an innovator. In its brief but eventful life it has responded to legislative deficiencies through investing large amounts of money into developing and implementing information technology systems to automate and improve the home selling and buying process. For example see Appendix A – an article on the innovation of one HIP provider working in conjunction with one of the Country’s largest Builders and Developer, Countryside PLC.
Like any responsible industry those working within it have and continue to listen to what the consumer is saying and to monitor and assess as an ongoing process the practical impact of the legislation. For example, when it appeared some sellers were finding it difficult to find the money to pay for the HIP upfront, the industry responded through offering through Lloyds Bank and Close Brothers low cost credit options allowing the seller to defer the cost of the HIP until such time as the property sells.
AHIPP has recently, wishing to make sure it remains in touch with the consumer’s needs and requirements, commissioned an IPSOS MORI poll. This surveyed over 2000 people involved in the home selling and buying process. Despite what has become a common perception that the HIP has no benefits, the results of this survey showed quite conclusively that the HIP is beginning to have a positive impact on the home selling and buying process.
The HIP Industry’s Vision
The message from the Industry is clear and consistent – the scrapping of HIPs will serve no purpose at all other than to throw the home selling and buying process back into the dark ages as well as removing a golden opportunity for a progressive Conservative Party to introduce further reform for the benefit of the public at large.
As the IPSOS MORI Poll has shown, the HIP has many benefits that present a solid and sound basis for the Conservative Party to build and produce reforms of its own in the full knowledge that is has behind it a well established industry with good infrastructure and networks.
The Conservative Party has already identified the way forward for reform. It has acknowledged the benefit a ‘ready to exchange pack’ (REP) could bring to the home selling and buying process. This is of no surprise to the industry as many within the industry have already evolved the HIP into a REP and have over the past year or so produced around 4,000 of this type of pack.
The industry supports and advocates the idea of taking the beneficial parts of the HIP and adding to these data and documents that turns the HIP into a REP.
What is a ‘ready to exchange pack’?
This takes some of the mandatory documents from the HIP, the Energy Performance Certificate, the property searches, the documents which prove title and places these with other documents/information that would otherwise be produced after the seller has found a buyer, and they could include:
• Contract for sale
• Seller Property Information Form
• Leasehold Property Information Form (where relevant)
• Fixtures & Fittings Form
• Additional legal documents referred to in the Register or (if unregistered) a full Epitome of Title
• Environmental search
• Copies of planning permissions and building regulations consents supplied by the Seller
• Guarantees supplied by the Seller
The REP would be ordered ( and paid for or an undertaking to pay ) before marketing and apart from the EPC which would need to be included in the pack before the marketing commenced all other documents would need to be added within 28 days of the first day of marketing. The EPC would need to be obtained before marketing to comply with the forthcoming requirements of the EPDG re-casting.
The Benefits of the REP to the Consumer
To understand the benefit of the REP one needs to look at and understand the process of selling and buying.
The steps in the process from start to the exchange of contracts when the parties become legal obliged to complete the transaction are, at present:
1. Obtain HIP
2. Market property
3. Find purchaser
4. Offer made by Buyer and Seller accepts
5. Instruct solicitor to act on sale and purchase, if the seller is buying another property.
6. The Seller’s Solicitor, having taken his clients instructions, prepares a draft contract and sends this with all of the other papers relating to the property (contents, fixtures & fittings, etc) to the buyers solicitor, including the HIP
7. The Buyer’s Solicitor will make use of the property searches and title documents within the HIP but will normally commission an environmental search. They will also raise enquiries with the Seller's Solicitors on the title of the property and may ask for other title documents to be produced.
8. When the result of these enquires is returned then the Buyer's Solicitor will advise the Buyer accordingly.
9. The Buyer's Solicitor will make appropriate amendments to the draft Contract submitted by the Seller's Solicitor with the pre-contract papers, taken in account the result of the enquires.
10. Exchange of Contracts- this is when a legally binding contract is made.
As can be seen much of the collecting of the data/information takes place after the offer by the Buyer is accepted. Even though the HIP has helped to speed up the process (by at least 5 working days) by placing some of this information and data into the hands of the Buyer’s hands at the point the offer is accepted, it does not at present go the complete way as the Buyer’s solicitor still has to order an environmental search, still have to wait for information to be provided by the Seller’s solicitors, as well as requesting additional title documents.
The advantage of the REP over the HIP is that all the documents the Buyer needs to advise his client and sanction the exchange of contracts are made available by the Seller shortly after marketing and before an offer is made and accepted.
Therefore the process with a REP is reduced in time as follows:
1. Order REP. EPC is received within REP and property is marketed.
2. REP completed and handed to selling agent to pass to purchaser once buyer is found
3. Offer made by Buyer and Seller accepts. Seller Instructs solicitor to act on sale and on purchase, if the seller is buying another property.
4. Buyer’s Solicitor receives REP. Considers papers and documents within it, advises buyer, approves contract and indicates readiness to Seller solicitor to proceed to exchange. Contracts are then exchanged.
So in short the benefits are:
• Drastically shortening the time from acceptance of offer to exchange.
• Streamlining the buying and selling process.
• Providing certainty to both buyer and seller that once the offer is accepted the transaction is more likely to go through than not.
• Less likelihood of ‘gazumping’
• Less likelihood of experiencing the trauma, stress and cost of an aborted transaction.
• Greater scope for solicitors to focus on what they do best – checking documents and carrying out due diligence on the title without having to worry about the administrative tasks of ordering and gathering data/documents.
What is needed to bring about the benefits of reform of this type?
The main and most important requirement is the preservation of the principle upon which the HIP concept is based – the importance of mandatory upfront information.
The Conservative Party has maintained that the imposition of a mandatory requirement as a pre-condition to marketing is not consistent with their wish to reduce and eliminate unnecessary bureaucracy.
However with the re-casting of the energy Directive which governs the EPC, there is likely to be no option to the Conservative Party, but for the EPC to be produced before a property is marketed. If the EPC has to be produced upfront, the requirement to produce other documents/information within 28 days of marketing and that would need to be generated as part of the process in any event, must surely be of no consequence to the Seller or the Buyer.
The only added cost is the cost of the EPC which would be needed in any event under any regime.
This will of course transfer some of the cost from the Buyer to the Seller but 90% of buyers are also selling a home at the same time, thereby neutralizing the impact.
More importantly for first-time buyers, there is a welcome cost saving as they are able to get on to the property ladder without having to pay for the pack.
Would this work if it was made voluntary?
No - this would simply not work and cannot be regarded as a viable option. If one of the parties in a chain of transactions made use of the REP and another did not, then the benefit of speed and cost saving would be lost as the transaction can only proceed as quickly as the slowest participant.
One only needs to look at the Law Society’s efforts to introduce a national protocol for solicitors to follow when acting for a sellers and buyers. It has failed to achieve any improvement in reducing time as it’s based on a voluntary uptake.
Support for the need for further reform
There is widespread support for using the HIP as a building block for further reform of the home selling and buying process both within and outside the property industry.
In the section on Market Driven Solutions:
The current home buying process is one that fails consumers. While efforts have and continue to be made to improve it, while this market failure exists, Which? does not support the abolition of HIPs. Which? still believes the principle of a HIP is a good one. We support consumers being better informed about what is likely to be the biggest purchase of their lives - their home. This applies in particular to first time buyers who need better independent information. But HIPs in practice have been of limited value. The inclusion of the property information questionnaire was welcome but there is still much work to do to improve the home buying and selling process and to raise standards. In short, though HIPs were supposed to speed up house sales, reduce stress and hassle by empowering consumers and save consumers' money, the jury is still out.
Mark McLaren, Which? Public Affairs and Policy
In the Section on How is an ERP different to a HIP:
At the Land Data Great Housing Market Debate in April 2009 a panel of experts, during discussion and debate on Home Information packs, unanimously agreed that “while packs had been poorly implemented they should not be scrapped but instead adapted and improved”
Kate Barker, former MPC member
David Miles, Chief Economist, Morgan Stanley
Michael Coogan, Director General, CML
Hugh Pym, Chief Economics Correspondent, BBC
Grenville Turner, Group Chief Executive, Countrywide
In the section on Energy Performance Certificates:
If EPCs became a requirement at the end of the sale process, rather than being a legal requirement as the house is placed on the market, it would be an unhelpful step. Consumers need to have a better understanding/knowledge/awareness of EPCs so they need to be right at the front of the sales process.
Richard Capie, Director of Policy, Chartered Institute of Housing
*The Law Society is currently consulting on proposals for a membership scheme that would explore "the development of completion-ready packs (taking HIPs to their logical conclusion)".
Law Society, Improving Residential Conveyancing, June 2009
Halifax Estate Agents firmly support reforms to the home-moving process which will reduce costs, improve transaction speed and give greater certainty to customers.
Joel Ripley, Director
Having the legal paperwork and searches available upfront can speed up the due diligence process. Whilst HIPs have not achieved all their objectives, we urge an incoming Government in 2010 not to throw the baby out with the bathwater, but to undertake a detailed review on which aspects are working and which are not, before making a decision”
Roger Wilson, Conveyancing Services Director, Connells
Whilst the current HIP system is far from perfect, the provision of upfront information through the HIP is of great use.
Melfyn Williams, Managing Director, Williams and Goodwin Estate Agents, Past President National Association of Estate Agents 2003/2004
Conclusion
The HIP industry calls upon the Conservative Party to pause, to reflect and to seize upon a golden opportunity to take credit for turning a poor piece of Labour devised legislation into a platform for further and more constructive reform of the home buying and selling process. The Party has already identified the benefits a REP would bring and to convert the HIP into a REP would not only prove to be a simple exercise given the existing infrastructure but would also more importantly be widely accepted by the electorate.
The adoption of this policy would also be consistent with decision of the Conservative Party to review all existing policies in light of the impact of recessionary factors. It would prevent the level of unemployment increasing by 10,000 (comprising of a large number of young employees), it would preserve the VAT revenue (£80 million) at a time when public funds are at the forefront of minds, as well as helping first time buyers get onto the property ladder when combined with the Party’s stated intention of raising the threshold of Stamp Duty.
Appendix A
Joint Press Release from Countryside Properties PLC and Hipshomes Limited on the introduction of a new system for the production of ‘ready to exchange’ Home Information Packs.
Countryside Properties PLC, one of the largest private property developers in the UK, has teamed up with the Norwich based Property IT Company, Hip2go, to produce a system for the ‘in house’ production of home information packs with the added benefit of ‘ready to exchange’ status. Built specifically for the requirements of new build homes industry, this is believed to be the first system of its kind.
Designed to facilitate the electronic compiling and production of legal documents used in the sale of new properties, the ‘LIP’ (Legal Information Pack) is helping Countryside Properties to automate the legal process involved when selling a new home thereby making it easier and quicker for a buyer to move in.
Angela Dowding, Group Chief Solicitor, at Countryside Properties explains:
“Each time we release a new development, there is a need for my team to collate and produce a vast number of documents which will be used in the establishment of the conveyancing process. These documents include, draft contracts, draft deeds of transfer, property searches and other vital information. The new compiling system helps my team in sorting, arranging and conveying these documents as well as enabling buyers and buyer’s solicitors to access the information electronically through a secure viewing platform. It eliminates the need to dispatch by post large bundles of paper, and more importantly helps to speed up the time it takes to progress the sale and purchase from the moment the offer is accepted.”
*The practice of collating and making legal documents available up front at the point of marketing is becoming more popular according to David Pett, Managing Director of Hip2go. He explains: “An increasing number of solicitors, estate agents and HIP providers are now making ‘ready to exchange’ solutions available to their clients. This advanced HIP includes the additional information that is required by the buyer’s conveyancer during the buying process. Its benefits to the buying process are significant in terms of speeding up the time it takes to exchange contracts which in turn helps both the buyer and seller in reducing cost and stress.”
The advance of the exchange ready pack is also receiving interest from the Conservative Party with the Shadow Housing Minister, Grant Shapps, recently commenting that this is something which they would look at.
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