HIP and hope

Just over a year from now, the process of buying and selling a home will be transformed. The introduction of compulsory Home Information Packs (HIPs) from 1 June 2007 is expected to make the homebuying process much simpler, and ensure that fewer sales fall through when surveys reveal unexpected snags.

Around £1 million per day is wasted on deals that fail, says the government, as buyers shell out for valuations, searches and legal help and then helplessly watch the sale fall through when structural problems emerge, or worse they get gazumped. Over a quarter of sales now fall through once an offer is accepted, and half of those do so because of a survey.

Dry runs start across the country this summer to see how HIPs work in practice, with the first trials expected to be held in Cambridgeshire.

What’s a HIP?

HIPs will include a Home Condition Report, which is a mid-range survey covering the condition of the property and its energy efficiency. Searches, title deeds, guarantees for building work and a form detailing fixtures and fittings also be included, as well as terms of the lease for leasehold properties.

And since just one in five of us currently gets a survey at all; the packs are expected to make home buying more transparent and could even shorten the homebuying process to an average of around four weeks from offer to completion.

“The packs will bring regulation and transparency to an industry that currently has very little,” says a spokeswoman for the Royal Institute of Chartered Surveyors (RICS). “It is hoped the HIPs will speed up the process of buying and selling, eliminate sellers ‘testing the market’, and buyers being outbid at the last minute.”

“HIPs should reduce the number of aborted sales, where vendors put their property on the market almost at a whim because it doesn’t cost them anything,” agrees Brian Murphy, lender manager at the Mortgage Advice Bureau.

Sellers pay, not buyers

Making sellers stump up for a HIP will make more information available upfront and reduce costs for first-time buyers, say industry commentators. The survey will be done before an offer is made, and the cost will be borne by the seller, not the buyer – or several buyers, in cases where several people have surveys done on the same property.

The government says that HIPs will cost around £600 plus VAT, though industry insiders disagree. Prices could well rise as high as £1,000, says Karen Babington, sales and marketing director at online conveyancer E2M, which already uses the packs. That cost will make vendors more wary if they are not serious about selling, she adds.

Newbuild, new headache?

Even newly built homes can throw up nasty surprises for the unwary, says Catriona Bright, founder and MD of New Build Inspections, who says that Britain is amongst the worst countries in the EU in which to buy new property. In Ireland, she says, the process is much easier, “as it is normal custom and practice for newbuilds buyers to instruct a professional ‘snagger’ to create a snag (or problem) list for a new-build property… after all, you wouldn’t buy a car without a test drive.”

Tried and tested

Some firms have already been using HIPs, as part of the government’s early adopter scheme and say they work brilliantly. The way we buy now means that structural problems, from rising damp to problems with cavity wall ties, may not come to light till way down the selling process. “In a typical case, the vendor gets an offer and is absolutely delighted. Then the estate agent gets a call from the buyer to say that they’ve found problems, and want £5,000 off the price. Naturally the vendor is unhappy.”

At Open Book, which has used HIPs for nine years, director of surveying Tom Littler says that starting with a Home Condition Report simply means giving earlier attention to problems which will arise later – and finding a strategic way to address them.

In some cases, vendors may take properties off the market and talk to insurers about underpinning. And a HIP can really help, says Babington, for vendors with a cosmetically unappealing but structurally sound home, or on an estate of identical houses, because a HIP offers a head start.

Property valuations merely assess how much a property is worth in case a borrower defaults on a mortgage, not the condition of the house. But HIPs will force all sellers to pre-survey the property before putting it on the market, therefore offering all buyers this information up front, before buyers even see the property.

HIPs are also part of a wider, government-fuelled drive toward greater energy efficiency in UK homes. “You go to homes where the owners are quite well off, and they’re simply pouring pound notes through the roof because they have failed to insulate the roof spaces,” he says.

Problems with title deeds, for example, like a footpath through a garden will also come to light early in the process so buyers will be able to make an informed decision on whether or not to view.

The price is right

In practice many buyers simply flick through to the conclusions to see whether they should buy a property or not, says Keith Gould, MD of HIP providers Stratify Associates, which was part of the government HIP consultation process. But HIPs can also help buyers budget for a new boiler, say, and they can provide invaluable information for lenders and solicitors.

Shock to the system?

Are we ready for total change? There is general industry concern that the 7,000 home inspectors needed to actually create the packs may not all be qualified in time.

Stephen Foden, chairman of property information pack provider Spring Move, says the fact a valuation is not included is an opportunity missed and might have prevented estate agents over-valuing properties and reducing the price later.

But HIPs should be good guides to the value of a property, argues Brian Murphy, lender manager at the Mortgage Advice Bureau, because all the information will be there upfront. As such, at least savvy buyers who spot potential problems with a property will either have their worries confirmed or put to rest.

HIPs will be authoritative, he adds: “HIP providers will be professional organisations, and the home inspectors will be RICS chartered surveyors with professional indemnity and years of experience and training.” Most pack providers will be large legal and conveyancing firms with reputations to keep intact, he adds.

Huge changes are afoot, adds Gould, who expects fewer properties to be on the market next summer because those just testing the market will have disappeared.

Instead buyers should see a clearer system that will speed the homebuying process and cut down on that £1 million going to waste every day.