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HIPs hit home

Introduction

Stephanie Wilson looks at the impact of the government's controversial Home Information Packs as they are extended across the entirity of the housing market in the UK.

Home Information Packs

For most of us, a home is the biggest investment we will ever make. In August 2006, the government began the biggest shake up the housing market has ever seen with the introduction of Home Information Packs (or HIPs) for homes of four or more bedrooms. Extended in September of this year to three-bedroom properties, the government recently announced the expansion of HIPs to cover the entire market, incorporating one- and two-bedroom homes from the 14th of December 2007.

Over the last few months estate agents have reported that the market is becoming increasingly tough. “Figures have shown, since HIPs were first introduced for four-bedroom homes in August 2007, there has been as much as a 70 per cent decline in the number of these properties on the market in some areas, mainly in the north of England,” explained Audrey Milnes of Titterington & Co, a Nottinghamshire legal firm. “However, although HIPs have compounded these problems, they are not completely to blame for the slump in the market.” This slump could be due to a number of factors – interest rates have risen over the last year, increasing the overall cost of taking out a mortgage, and the current credit crunch in the US economy, felt globally, has caused many lending institutions to review their policies, ultimately affecting the number of mortgages they are prepared to approve.

Estate agents also reported saturation of the one- and two-bedroom property market before the recent HIPs legislation was passed. The lack of clarity surrounding HIPs has caused many homeowners to panic, rushing to market their homes to avoid having to sell with a HIP. “I have seen three-bedroom properties being marketed as two-beds with a study or playroom in order to overcome selling with a HIP,” says Milnes. “Properties are being marketed incorrectly and not reaching their full retail potential; confusion is making homeowners lose out.”

It is essential that homeowners know the facts about Home Information Packs; what the pack means for them and how not to fall foul of the many pitfalls of HIPs. They must also take care not be taken in by the clever marketing tactics that estate agents are now employing in order to drum up business.

What should be contained in a HIP?

Each Home Information Pack should contain:

• An Energy Performance Certificate (EPC) – drawn up by a Domestic Energy Assessor
• Evidence of title and a plan of the property
• Local and Drainage Searches

Alongside this there are a number of additional documents which are required as applicable to do with the leasehold or commonhold arrangements, along with any building warranties.

What are the benefits of a HIP?

Although Home Information Packs have been heavily criticised by those within the industry, there are some positive aspects. “First time buyers will benefit to a limited extent because some of the searches they would normally have had to commission will have been undertaken, including the local and drainage search, so there will be a small cost saving, but in practice, other searches will still be required,” says Neil Riley, a conveyancer at Taylor & Emmet solicitors. “Buyers will also have the benefit of the Energy Performance Certificate – but in my experience this is unlikely to be a deciding factor when a buyer looks to purchase a property. Certainly, I have not had a single enquiry from any of my buyers about the Energy Performance Certificate.”

However, there also benefits to having the energy efficiency of your new home rated, as buyers receive advice from independent Domestic Energy Assessors (DEA) although many solicitors, agents and homeowners alike tend to agree that these reports state the obvious, and at a high cost. The EPCs do also tend to be quite unrealistic in their recommendations – some energy inspectors advise implementing efficiency devices that would literally take hundreds of years before you would see a return on your money. Invest your hard-earned cash wisely – double glazing, energy saving light bulbs and cavity wall insulation are great ideas, however solar panel heating might not be such a good one in the short-term.

What will I have to pay for?

If you are in a chain (selling your property and buying a new home), a HIP will not cost you any more than you will already have to pay; “for someone who is buying and selling, part of the cost which was previously attributable to the purchase is now paid on the sale,” clarified Neil Riley. “Previously the buyer paid for all searches done on a property, meaning that if a sale fell through, the buyer had wasted a considerable sum.” The new HIPs legislation means that vendors now pay for the local and drainage searches. Therefore, if the sale falls through, the searches and information relating to the property will still be usable within six months.

However, if you don’t manage to sell your home within six months of obtaining a HIP, you will have to source a more up-to-date pack and pay the fee again. Currently, certain banks, building societies and mortgage providers do not accept the drainage and local searches within the pack and insist on carrying out their own (at the buyer’s expense) before they will give a mortgage offer. In other words, they may totally disregard parts of a HIP. Unfortunately, there is no way to ensure that this does not happen to you, as currently there is no definitive list of mortgage providers who do not accept these searches. “Use an independent financial advisor to help you get the best quote, don’t be enticed by agents who tell you to use their in house mortgage advisor,” advises Audrey Milnes of Titterington & Co.

Do I need a HIP?

If you’re marketing your home you will need to obtain a HIP, either through the estate agents or by sourcing your own buyer. The legal definition of ‘marketing’ is somewhat unclear, but, generally speaking, if you use an agent or list your house on an auction website, then you will need to produce a HIP. However, if you’re selling your home to a bloke from the local pub who heard about your sale on the neighbourhood grapevine, this is not marketing, so, strictly speaking, you will not need a HIP. Nevertheless, as a buyer, it’s always a good idea to request to see a copy of the pack, so you may end up having to provide one anyway.

Where can I get a HIP and how much will it cost?

You can expect to pay, on average, about £300 to £350 for a pack, but this does depend on your property and location. It is always a good idea to shop around and get the best quote based on your circumstances. Many estate agents currently offer packs with a ‘no sale, no fee’ service, or tell prospective clients that their HIP pack will be ‘free’. In a recent survey, agents were asked if they would market a property with a HIP sourced from elsewhere. 70% replied that they would, but advised that they offered discount rates or ‘free’ packs. Be very wary of a ‘free’ HIP. You will ultimately pay for the pack in higher fees. “Companies should not be allowed to sell HIPs in this way as the cost of the pack is already incorporated into their selling fees and this should be made transparent to any sellers.’ says Milnes.

It is important when having your HIP compiled that you make the agent and assessor aware of any quirks or parts of the property that could be considered out of the ordinary. “I recently had a client who omitted to tell me that the garage was away from the property and was held under a lease. The pack was ordered without this information and when I received the deeds, I checked, and subsequently had to amend the HIP. If these deeds had not arrived so promptly, the property would have been marketed incorrectly,” explains Milnes. “I can also foresee problems where the property has both leasehold and freehold. As long as a solicitor is involved and is checking the pack before it is sent to the agents, these mistakes will be rectified.”

Shop around for the best HIP quote. There are hundreds of independent HIP companies and their prices can vary. “Leasehold properties are generally much more expensive to prepare a pack for as information is required from the freeholder and managing agents, for which they will charge extra,” conveyancer Neil Riley advises. “They are probably one of big winners out of this legislation as they can now charge considerable amounts of money – £200 or more for a London property – to provide replies to routine HIP enquiries.” Obtaining these answers will also take longer under the new legislation as this information is compulsory for all properties.

Until July 2008, vendors are allowed to market the property and sell subject to contract without a pack on the proviso that the HIP has been ordered. A pack usually takes 28 days or so to compile, and a property can be placed on the market as soon as one has been ordered. After July 2008, properties cannot be placed on the market until the pack is completed.

Currently the fine for being caught selling without requesting a HIP is £200, cheaper than sourcing a pack. Although just paying the fine is an attractive option for anyone wish to save money, “it is against the law, you cannot exchange contracts until the buyer has seen the Energy Performance Certificate at the very least,” warns Milnes.

Conclusion

Many critics have stated that the introduction of HIPs was a ploy to slow the market when it was at its peak and to meet EU energy standards. There has been much criticism over the way the legislation has been phased in and the diluted nature of the HIPs from within the industry, rendering HIPs a useless waste of time and money. But perhaps the phased process was the best way to introduce a change in the property market – the diluted HIP has been enough to discourage some sellers from marketing their homes – there are now less properties on the market but still a large number of buyers. In these times of economic instability, this legislation could, ultimately, help to stop house prices from plummeting.

Making significant changes to the way the market operates is always going to cause disturbance, but some of the failings of HIPs can be attributed to a lack of knowledge on the part of the homeowner, leading to panic selling or an unwillingness to market after legislation. The bottom line is, whether homeowners and the industry like it or not, HIPs are here to stay.

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