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Shooting from the Hip

Housing information packs Consumers need clarity on Hips, says London & Country head of communications David Hollingworth.

It seems that the mortgage industry has an insatiable appetite for acronyms. When terminology switched from seller’s packs to home infor-mation packs, it was destined to become universally ref-erred to as Hips – yet more jargon around the home-buying process further mystifying consumers.

Although the roots of and debate over Hips perhaps go back further, the foundation dates back to last year with the passing of the Housing Bill. This paves the way for the introduction of Hips in 2007, the aim of which is to cut down on the estimated 350m wasted each year on agreed property sales which never complete. Although originally intended for January 2007, it already looks likely that the launch date could be postponed until later in the year.

It does appear that Hips will happen and so it is important to consider their likely impact on the market. There is no doubt they will fundamentally change the way houses are bought and sold, with ramifications for surveyors, estate agents, lenders, conveyancers and brokers.

But it is worth first con-sidering some of the more general Hip issues with many concerns about the home condition report. This is an area where many have worries, starting with just how the volume of HCRs will be dealt with, given the numbers of adequately qualified persons.

There will be need for significant recruitment of home inspectors, raising question marks over the level of experience and qualification of home inspectors. It is vital that the requirements for home inspectors are rigorous enough to give lenders confidence.

Consumers may have reservations over the HCR and relying on a report prepared by the vendor leading them to instruct their own surveyor.

This is something that the Government is aware of and needs to be addressed through robust certification requirements for the home inspectors. The HCR goes to a greater depth than a mortgage valuation (similar to a homebuyer’s report), so at least the buyer will be getting more detailed information than in many cases currently.

The lifespan of Hips and their potential need to be updated is one of the areas which does not get as much focus as it should. It is certainly feasible for a property to be on the market for the longer term, particularly in what has been a cooler market which begs the question of how often the HCR and searches will need to be updated.

Currently, it looks like the seller will not be required to update either and this could fall to the buyer to decide if it is necessary. Reliance by lenders on ageing HCRs and convey-ancers on out-of-date searches is unlikely and some guidelines would help. There are various potential solutions, inclu-ding offering some kind of reduced cost of updates or the use of insurance.

The crucial area of concern for any broker is how it will affect the purchase of mortgages. It is undeniable that estate agents will be in a position of strength when it comes to the provision of the pack itself. This will in turn strengthen their position in securing the mortgage business, with the agent’s mortgage adviser the likely candidate to be signing up the sale of the pack before moving neatly on to “in-principle” mortgage advice in an attempt to ensure the return of the seller once they find a property to buy.

The Office of the Deputy Prime Minister’s website explains there is no comp-ulsion for a buyer to have agreed a mortgage before making an offer although this is an attitude they hope to foster. The more interesting element of this is in the parties it names as key in promoting this. “With the assistance of mortgage lenders, estate agents and conveyancers, we want early ‘in principle’ mortgage offers to become standard good practice.” This seems to ignore mortgage intermediaries entirely as part of the process, whereas estate agents and therefore their mortgage advisers are viewed almost as stakeholders.

Most important, there are worrying possibilities for the consumer. There is the risk that the consumer does not appreciate that they are free to shop around for their mortgage. The danger is that not only do they believe they need to use the Hips provider but as a consequence get advice on a limited panel of lenders rather than taking advantage of advice from the whole market.

I do not want to suggest that sellers/buyers will be strong-armed into taking advice from all estate agencies but it is possible to see how the Hip sale could help the agent secure the sale of financial services. There is a definite need to make it absolutely plain that the provision of the Hip in no way affects the purchase of the mortgage.

Overall, plenty of questions remain as to whether Hips will work as well as the Government hopes and there is scope for more negative press but they do offer some positives and they are coming and they are coming very soon.

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