Ready for H-day?

There are only 90 days to go before home information packs (HIPs) become compulsory. Legislation still needs to be finalised but the government has not budged on the target date of 1 June for the entry into force of the new system despite renewed warnings from solicitors and lenders last week that the property industry was not ready.

Was it ever a good idea?

Everyone involved in property buying is generally in agreement that the system could be improved. Britain needs a new model that will help cool down inflationary price rises, put an end to gazumping, and make the whole buying and selling process faster, cheaper, and more stable.

Enter 'home information packs' (HIPs), the government's response to those concerns, which, almost from the beginning have divided the nation. The idea was simple: a single set of documents would contain all the information relating to a property, from the basic local and personal searches, to home condition reports (HCRs) and energy efficiency reports (the energy performance certificate, or EPC). These would be put together by the seller before a property is marketed. Overall, the process would be cheaper (buyers would not have to commission their own surveys individually) and faster (all the documents that usually slow down the sale process would already be collected by the time the offer is accepted).

But HIPs have been doomed from the start. Solicitors saw them as an unnecessary burden on an already lengthy process. Estate agents felt that they would be lumbered with an additional responsibility and that HIPs would damage the market. Surveyors were suspicious of the home inspectors, that new breed of professionals who would be fast-tracked into positions of responsibility without adequate training. HIP providers aside, of the larger organisations, only the consumer protection association Which? came out in support of the proposal.

On the buyers' side, doubts were expressed over the reliability of a report prepared on behalf of the seller. In addition, this time last year, the Council of Mortgage Lenders warned that a key component of the pack, the HCR, would not replace the need for a valuation because it was all about the physical state of a property, not about its market value.

So, in July last year, the government threw in the towel and announced that HCRs would not be compulsory. This left only one compulsory element in HIPs, the EPC, a requirement implementing an EU directive unrelated to the conveyancing process.

Nevertheless, the government confirmed on 25 January that it would proceed with the introduction of HIPs on the original date of 1 June this year, albeit in their emaciated form. The official line taken by the Department for Communities and Local Government is upbeat. EPCs are part of the government's policy to tackle climate change, allowing consumers to make 'more informed choices about the homes they buy and their impact on climate change', according to Communities Secretary Ruth Kelly.

The next morning, the Law Society reiterated its opposition to the plans. 'The government's ill-thought plans will leave the already volatile housing market in a state of chaos,' said Paul Marsh, the Law Society's vice president.

And only last Friday, mortgage lenders again asked the government to delay the introduction of HIPs until the trials which took place in six towns around England were complete and the results properly reviewed.

Who needs a broken HIP?

Julia Posener, head of property at Liverpool-based firm Goodmans Solicitors, voices the disappointment expressed by many within the profession: 'The government is really using EPCs as a green tag on which to hang the HIP. There is now a transitional period of six months, and all that seems to be required for a HIP now is an index, a sales statement, evidence of title, evidence that other documents are being commissioned, and the EPC.'

The government's latest pronouncement included an optimistic note that EPCs were 'the first document in the home information pack', suggesting that it may not have given up completely on introducing HCRs at a later stage. But Posener warns there is no guarantee that HIPs as currently proposed would not go on indefinitely. 'I cannot see any advantage in this,' she adds.

Posener also doubts that the intended transparency of HIPs will bring any of the promised improvements to the housing market, such as speeding the transaction process and reducing the number of failed transactions.

As for the EPCs, Posener thinks their aim '“ to indicate how environmentally friendly a property is '“ is laudable, but that it has no relation to the property-buying process itself. In addition, she says, 'an EPC is not a 'pass or fail' certificate, it is just an indicator of what you would need to do to make the property energy-efficient'.

The main frustration over the current proposal, however, is that the government has failed to tackle the main reason for slow transactions. 'Obtaining leasehold documents is the main sticking point, because it's all reliant on third parties '“ the management companies. Solicitors push documents through as quickly as possible, but management companies have no interest in acting as promptly.'

There are also fears that HIPs will put further financial pressure on property transactions, in a very price-sensitive market. 'Price is an important factor for clients,' explains Posener. The main search providers offer a slick web-based facility, but Posener says that the fees they charge are much higher than search agents. In addition, they tend to be mere facilitators that rely on data held at the Land Registry '“ whose information about title is not always accurate, according to Posener. 'Personal searches by local agents tend to be cheaper and more accurate, and they are acceptable for HIPs purposes,' she says. 'City Council searches in our area are reliable, but they are also quite expensive because the Council has substantial overheads, which agents don't have.'

But Posener's main concern is that the proposals undermine the 'caveat emptor' rule. 'My work as solicitor is not to buy a house but to ensure that my client's money is protected by a good investment and that, if I'm acting for the seller, that his responsibility is protected.'

Questions on current property information forms must be answered truthfully, but information which is disclosable is limited. In fact, many solicitors advise sellers not to answer some questions

as it might expose them. 'The answers to many questions can be found from other sources and it would be unreasonable for a seller to give assurances about whether the heating is working or whether anything is happening in the neighbourhood, as he might risk making misrepresentations,' says Posener.

In practical terms, Posener believes that most solicitors are ready to provide HIPs, even where no formal arrangement is in place yet. 'Most solicitors around Liverpool have been involved in the roll out and will be able to provide HIPs. We are not all going to the same provider, but we will be ready come 1 June. The problem is with estate agents who are not part of large national chains; these may have difficulties on H-day.'

HIPs are here to stay'¦ or are they?

But like them or loathe them, HIPs look like they are here to stay, which is why Glynis Mackie, a sole practitioner based in Newcastle specialising in property and conveyancing, decided she ought to get involved in the government's dry run.

Leaving aside her own reservations about HIPs, Mackie thought taking part in the trials would be the best way of finding out where the problems might be before the 'live' date.

Mackie signed up with Transaction Online, a service provided by the Law Society's preferred HIP provider and did about 20 transactions involving a HIP in conjunction with a local estate agent. The arrangement was informal, in that it was not a referral agreement, and merely required the agent to encourage his clients to request a HIP, which Mackie would produce.

'The first ones were quite time-consuming, which is a relevant factor, considering that the only person being paid for a HIP is the HIP provider.' Mackie says 'But I carried on because I want to know what I'm doing when HIPs come in. The documents themselves also took a lot of time to come through '“ about six weeks for the first ones and four weeks for the last ones.'

'We did personal searches and the buyer was also doing his own searches, which put further pressure on local authorities. There was only one sale where the seller on the other side had prepared a HIP. Nobody is expecting them, so it is little wonder that the processes are still slow. At the moment, searches with local authorities in this area take about 10 days, which is good, and there are concerns that they will take longer with HIPs.'

According to Mackie, the take-up for the trial runs in Newcastle has been limited. 'Solicitors generally are just crossed about it '“ it's another form to fill in,' she says. 'These forms are supposed to be understandable for clients, but most people won't be able to process and absorb the information. It involves quite a lot of work on the part of

the solicitors, the forms are quite technical, it's not material that clients can easily

understand.'

Like other solicitors, Mackie queries the rationale behind the plan. 'We had an email from the government last week suggesting we should encourage our clients to pay for HCRs. What is the benefit for my client? It may depend on how much they are going to cost, but on the basis of the latest estimates which indicate that they will be in the region of £250, there has to be a tangible benefit.'

Mackie is also unconvinced by the argument that HIPs will contain gazumping. If a client can get an additional £4,000 for their property, why would they say no?.

Her real concern is how she will fund the process, because, she says, clients will not be prepared to pay upfront. 'At the moment, a HIP has to include water, personal searches and (in this area) coal mining searches, which amount to £250; then the EPC at £150, bringing the total to £400, but it could probably come down to £250 were no coal mining search is required.' One problem though, is that personal searches, carried out by an agent, are not as extensive as those carried out by the local authority and can miss important elements, such as planning permissions and building up of new roads.

On the whole, however, Mackie says she is prepared. Producing her first pack took about two hours, but by the end of the trial, she was down to 20 minutes. 'Now I know where the problems are; it is a question of the more you do something, the quicker you get.'

In time, Mackie also says she will consider producing her own templates as a means of keeping costs down, and only outsource for the EPC which has to be prepared by a qualified inspector.

The agent with whom Mackie works says he is not interested in producing HIPs and so the responsibility will fall on her as the solicitor. She is quite positive however that, despite the resulting increase in workload, the advent of HIPs could work in favour of sole practitioners like her who enjoy a good reputation. And the larger firms will be able to absorb the changes in their existing processes. Those who will be hit hardest, she says, are the smaller, three-partner firms, who have bigger overheads than sole practitioners without the economies of scale of the larger firms.

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