In the lead up to 1 June 2007, the spring property market is expected to surge by 20 per cent as people try and dodge the dreaded HIPs. But what exactly is so unappealing that has made companies such as the Council of Mortgage Lenders and the National Association of Estate Agents speak out against their introduction?
First things first
Before any money has been laid down and any professionals called, it is important to familiarise yourself with the basic components of a standard Home Information Pack so that you know what is required of you as a seller, and what to look for as a buyer.
The required parts to be included in all HIPs are:
- An index, which will list all of the contents
- A sale statement which summarises the terms of the sale
- Evidence of the sellerÂ’s title documents
- A drainage and a water search, alongside details of local authority enquiries – or at least proof that these have been requested
- An Energy Performance Certificate (EPC)
Parts of HIPs which are required but depend on the individual situation – i.e. only certain homeowners will need to include them:
- Leasehold information, which will need to include a copy of the lease and information on both service charges and insurance
- Commonhold information, including a copy of the commonhold community statement
- A New Homes Warranty
- A report on a home which is not physically complete
Some documentation will indicate that a Home Condition Report (HCR) is a compulsory requirement for your HIP. These were initially to be given mandatory status, but as of 1 June 2007 they will be an optional part of the pack and not required by law. However, the government strongly advises homeowners to invest in one, as they believe HCRs will prove invaluable to both the buyer and the seller.
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Guarantees, warranties and other searches are all optional parts of the pack and may be of help, although this is down to the seller to decide. When compiling the pack, remember that missing out any of the required components means a fine of £200 will be imposed on the person marketing the property – namely the estate agent.
The history of HIPs
Announced in November 2003, HIPs are based on similar practices currently used in Australia and Denmark. The cost of the whole pack, including a HCR, will range between £600–£1,500 depending on the size of the property in question. The two largest parts, the HCR and the EPC could cost between £250–£1,100 and £80-£300 respectively, although the price may come down once HIPs go live.
These may seem like a shocking set of charges just to put your house on the market, and have been cited as a major reason for the widespread negative reception the Packs have been getting. However, the Government have pointed out that most of the documents already have to be provided during the sale process, meaning the new requirements do not differ greatly from current practice.
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Even though houses on the market before 1 June donÂ’t have to pay for a HIP unless they are still on the market by 1 November, houses with a HIP that have been up for sale for some time will be liable for additional costs to bring the Pack up to date. This may be a bone of contention with sellers, but it should help the scheme achieve its initial aim of speeding up the home buying process.
Every serious buyer will get a survey done before they put an offer in on a property, but if the HIP includes an HCR then it will not be necessary. This saves the prospective buyer money and if multiple parties are interested in one house, there is no need to carry out numerous surveys at huge expense. By skipping this costly exercise, buyers will be more inclined to put in an informed offer.
Undoubtedly, it is the first-time buyer who will benefit the most from HIPs, as they get all the perks of buying a property that has one, yet they do not have to fork out themselves.
Keep a weather eye open
The initial fear is that HIPs may depress the housing market. Unfortunately this is going to be a case of ‘suck it and see’ when the scheme goes live. Sellers are likely to be reluctant to pay these upfront costs, seen as a tax for putting their house up for sale, running the risk of widening the chasm between supply and demand.
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However, HIPs are highly likely to act as a deterrent and ensure fewer sales fall through at the last minute after surveys reveal unexpected results. Brian Murphy, lender manager at the Mortgage Advice Bureau, believes they will also prove equally useful at the other end of the home-buying spectrum: “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,”
As the brainchild of the current Labour government, the Conservative party have called the scheme ‘yet another piece of red tape,’and announed plans to scrap them if they succeed in the next General Election. Whether this is a ploy to win more votes or not is up to the voter, but it is certainly an interesting move.
HIPs politics are not limited to the commons though, and an equally divided set of opinions abound within the housing industry itself. The consumer organisation Which? is 100 per cent behind the introduction of HIPs, believing that they will enrich the UK property market, but high profile associations such as the National Association for Estate Agents and the Council of Mortgage Lenders, alongside Spicerhaart, BritainÂ’s largest independent estate agent, have individually spoken out against their 2007 introduction.
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All this taken into account, one thing is for sure; HIPs are definitely a case of ‘time will tell.’ They could indeed add the desired transparency and reliability to the housing market, but they could also end up turning it on its head.
WhatMortgage.co.uk outlines its top tips for sellers affected by the new law:
- Buying a home without a HIP has been compared to buying a car without test-driving it first. If you have your doubts, keep this reasoning in mind. You might be loathe to stump up the cash, but it is highly likely that youÂ’ll be buying another house so you will see the benefit first hand
- Don’t see the HCR as a hindrance, but view it as a help. The Report has been praised as an ‘early warning sign’ enabling homeowners and potential buyers to spot future problems before they rear their ugly heads
- Responsibility for producing the HIP will most likely fall to the person marketing the property, usually the estate agent, developer or auctioneer unless the house is being sold privately
- As a seller you need to be clear about all that is required of you – an incomplete HIP, or none at all, will cost your estate agent a £200 fine on top of the extra costs you will incur to complete it
- As a buyer you need to be aware of what information to look for. If the seller has chosen to omit an optional but useful component like an HCR, you need to question why as there could be underlying issues
- The Association of Home Information Pack Providers (AHIPP) has introduced the ‘HIP Code of Practice’ which sets standards that Pack providers have to conform to. Approved providers’ Packs will carry insurance and are identifiable by a unique logo
- Homeowners in over 20 locations across England and Wales are currently being offered the option of getting a HIP on their home, a wise move if you want to stay ahead of the game
- Leading by example, 60 per cent of homes for sale in the HIP trial areas have include an HCR in their Pack, something to keep in mind when deciding whether to include
one or not - Consumer feedback from all locations trialling HIPs so far has reported that homeowners have found the Packs to be a useful selling tool.
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