Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Written Evidence

Memorandum by Michael Mortimer MRICS (DHB 25)


  The following are submitted for consideration by the Select Committee, with the hope that they may be of assistance to the Committee's inquiry into the draft Housing Bill. More detailed information can be made available from research papers and calculations which we have prepared. Abstracts from some of the papers have been submitted as part of the formal consultation process into the Bill.


  Although the old fitness tests might have been regarded as being very subjective, are the new hazard categorisations with their numerical scoring methods going to be an over complication? It appears quite difficult to assess the impact of these provisions without the inclusion of the actual hazard rating classification into this primary legislation.


  Surely if housing problems exist, Local Housing Authorities should be empowered to take action regardless of housing demand. As many tenanted housing problems can emanate from the actions of tenants, could be an appropriate time to consider additional provisions for "a register of bad tenants".


  Although there appears to be industry wide support for any proposals to improve the process of buying and selling a home, I, along with others, have major reservations as to whether the Home Information Pack proposals are the best solution to a problem which arises out of the very complex and fragmented nature of the housing market.

  1.4.1  Home Information Packs will add at least £650 million per annum to home selling costs or £505 per transaction. In the partial Impact Assessment which accompanies the Draft Bill, it is stated that "the total cost of assembling the Home Information Pack would be around £1.33 billion [per annum] if, as now, two million homes were marketed each year". We have calculated that the necessity to include a Home Condition Report and some other items within the Home Information Pack will add at least £650 million per annum, in real terms, to home selling costs in England and Wales. Our calculations can be borne out by figures published by the ODPM as a result of the Bristol Trial whereby it was stated that "selling costs would rise from 1.9% to 2.3%" of the resultant sale price or on average £505 per transaction.

  1.4.2  The Costs of Home Information Packs appear to far outweigh the benefits. In the most recent issue of the Cabinet Office's Guide to Regulatory Impact Assessment (January 2003), it is stated that Government Departments should consider alternatives to legislation if "the costs of Government action are greater than the costs imposed by the problem it is designed to correct." Best estimates from the ODPM suggest that the hypothetical savings attributable to the introduction of Home Information Packs would be £350 million per annum. We have calculated that this hypothetical saving when taken away from actual additional costs products a net additional cost of at least £300 million per year to consumers. When this is coupled with the estimated costs of implementing the legislation on the property industry, a net total additional cost of £380 million is derived.

  1.4.3  Home Information Pack legislation appears premature when electronic conveyancing and other IT based infrastructures might not be fully available until the end of the decade. The ODPM has stated that "Electronic conveyancing will complement our proposals for Home Information Packs. Home Information Packs will ensure that important information is provided up front at the very start, and electronic conveyancing will speed up the conveyancing process thereafter." The Land Registry has embarked on massive change to make electronic conveyancing possible. The scale and extent of the change can be illustrated by an extract from a Report to the Prime Minister, which was prepared by Patricia Hewitt, the e-Minister and Andrew Pinder, the E-Envoy in April 2002—"The aim is to introduce, over the next five to 10 years, a radical overhaul of the conveyancing process in England and Wales."

  These sentiments were also reiterated in a statement made by a minister in the Lord Chancellor's Department—"A system offering all those advantages will not appear overnight. Electronic conveyancing is not a short-term project. The Land Registry, for example, is planning for a decade or so of progressive change. Advances will be made incrementally as experience is gained and methods tested. We must not prejudice the security and integrity of the land register, or any other public register, through undue haste. A big-bang approach would be a long time coming, out of date before it was launched and impossible to manage." The timescales involved can be seen from The Land Registry published Timeline where it is stated that "We think we will be able to launch a pilot version of the new system during 2006. We do not know at this stage how a pilot will be operated, but it is likely that volunteer conveyancers will run both the new electronic system and the old paper-based system in parallel. It will then be possible to compare the new system with the old, and quantify the benefits, if any, following from the new electronic system." Is Home Information Pack legislation putting "the cart before the horse", when the IT Land Registry infrastructure for e-conveyancing will not be piloted until 2005 and unlikely to be complete until the end of the decade?

  1.4.4.  A need for joined up Government. It would appear that the Lord Chancellor's Department has adopted a more prudent approach in respect of electronic conveyancing in that some of its consultation documents refer to a "a possible solution" whereas ODPM documents refer to Home Information Packs as "the solution". This subtlety has to be seen in the context of a consultation exercise where there is a feeling that the views of many were ignored after the first consultation exercise into Sellers Packs. It could be said that the Lord Chancellor's Department has to date conducted a model project in the desire to bring about electronic conveyancing by proposing that the introduction of massive change will be on an incremental and voluntary basis over a number of years. The Homes Information Pack legislation appears to be adopting the big bang and compulsory approach. From a political perspective, the impact of Home Information Packs will be felt far more directly by consumers than electronic conveyancing.

  Any improvements to the process of buying and selling a home will be almost totally dependent upon a series of integrated IT led solutions, coming in the main from Government led projects for electronic conveyancing. The National Land Information Service and The National Land and Property Gazetteer. Although substantial work is under way to implement these projects, we should always bear in mind the track record of past Government led IT projects and the Land Registry's own statements that electronic conveyancing would not be fully operational until 2012 as per a statement from the Chief Registrar. "The Land Registry has just embarked on a massive period of change that, by 2012, will have delivered a complete Land Register for England and Wales and a full electronic conveyancing system that will revolutionise home buying in this country." As Home Information Packs are an integral part of the overall project to improve home buying and selling, the ODPM should surely be adopting a more joined up approach by proceeding with caution and conciliation to those who are offering genuine advice and will have to work with the consequences of any legislation.

  1.4.5  Who will really benefit from Home Information Packs—if compulsory Home Condition Reports are to be included in the pack, Home Inspectors stand to earn over £500 million per annum. Is it any wonder that the Royal Institution of Chartered Surveyors, whose members will probably make up the majority of Home Inspectors, is so supportive of the proposed legislation whilst the National Association of Estate Agents, whose members will have to implement the legislation, have major reservations. Consumers, in this case home sellers, will have to find an additional £650 million per annum to pay for the cost of fully implementing the proposed Home Information Pack legislation.

  1.4.6  The Bristol Trial—Despite leafleting every household (162,000 from latest Census returns) in Bristol with a population of 380,000 and other extensive publicity together with the Government paying for the cost of preparing the pack, only 159 volunteer transactions came forward over a six month trial period. Of those only 61 exchanged or completed a sale by the end of the six month trial, when 4,400 sales were completed in Bristol in a six month period in the same year. Hardly a ringing endorsement or large sample size.

  1.4.7  Will the transposition of the Danish model from Home Information Packs work in England and Wales? In Denmark 90% of their housing stock was built in the 20th century whereas England and Wales have the oldest and poorest housing stock in Europe. In Denmark, their Home Information Pack process only had to cope with 70,000 property transactions in 2000 when in England and Wales we would have to produce 1.5-2 million packs in an average year. To deal with the complexities of Home Information Packs in Denmark, estate agents have to be licensed. To gain a licence, agents must have a good theoretical and practical knowledge of property matters. From June 2003, all new licensees must have a degree in property transactions and have completed two years practical training. This has to be compared with England and Wales where no formal qualifications or training are required for estate agency.

  In Denmark, it is not actually compulsory for a condition report to be included in a Home Information Pack although the seller could become liable for all defects which were not disclosed to a purchaser for up to 20 years if a condition survey and insurance for hidden defects is not included. The process of change in Denmark was brought about over a decade, which like us included the computerisation of their Land Registry. Most importantly the change in the law to make sellers' responsible for defects, if a condition report is not included, was not introduced until the later stages of the whole process in 1997 and only after home inspectors, who are mainly architects and engineers, had been trained and evaluated by the Ministry of Trade and Commerce.

  1.4.8  Lessons from Australia. The New South Wales regional government first introduced Home Information Pack type legislation in 1987 and have been legislating ever since to try and resolve problems which have emerged with the process. The legislation was not adopted by the five other states and territories in Australia. In New South Wales, a seller has to have a "contract for sale" prepared and available before a home is put on the market. The contract document must contain a zoning certificate (planning permission), a sewerage diagram and a copy of the title deeds and plan. There is no compulsion to include a survey or home inspection report in that it is still the responsibility of a prospective purchaser to obtain information on the condition of the property. This arrangement of "buyer beware" contradicts the statement made in an ODPM Housing Research paper (No 101 1999) where it states under the section of New South Wales that "The new system is based on caveat vender . . . the transfer to caveat vendor has been a success." My enquiries of legal and real estate practitioners in New South Wales confirm that "caveat buyer" has not been reversed in that the contract for sale still has to be checked by a purchaser's solicitor and the purchaser is always advised to obtain their own survey and termite test.

  In New South Wales, it is considered by many who I have contacted that buyer commissioned and paid for surveys show a commitment by a prospective purchaser. If Home Information Pack legislation were introduced in England and Wales with a compulsory Home Inspection Report, it could introduce what I have euphemistically called the "butterfly purchaser". In a post Home Information Pack market, purchasers will only have to make a minimal financial investment up to an exchange of contracts which means that they could flit from property to property making offers at will. Could the butterfly purchaser be worse than the gazumper or gazunderer?

  1.4.9  Proposals for Home Information Packs amused the Americans. When we were researching the US market for some other property related product developments, we explained what was being proposed in the UK. In some areas of the US, pre-marketing appraisals and home inspections have been tried without great success in that it led to fraud and coercion of surveyors in some instances. The expressions of astonishment at what was being proposed and rueful sentiments which we received to the Sellers Pack proposals are understood to be similar to those received by a delegation from the DETR when it visited Massachusetts in 2000. However, we have been unable to find any reference to that visit or research from the US in any background documents to this proposals legislation.

  1.4.10  The Impact of Home Information Packs on the Housing Market. The partial Impact assessment which accompanies the Draft Bill considers the effect of the legislation on the market (Paragraphs 34-36 Page 257). Having considered the two extreme consequences of "some" and "no real long term" effects, the section concludes by stating that "There is no way of knowing in advance which of these views is correct". The spectrum of effect has to be seen in the context of the research used where the least effect research data comes from Countrywise Assured Group who are the owners of the largest estate agency chain. This company also has extensive surveying interests as well as having a significant shareholding (47% in 2001) in TM Property Services Ltd, which is one of the three companies licensed to provide electronic property data form the National Land Information Service. At the time Countrywide Assured secured their stake in TM Property Services, they stated that "The Company plans to extend its electronic infrastructure to enable it to become the primary source of land and property information throughout the UK and become the UK's leading facilitator of Sellers' Packs." Is research from Countrywide unbiased as it appears to have a considerable vested interest? At the other end of the spectrum, anecdotal evidence suggests that "as many as 40% of sales could be as the result of an unplanned house move." Therefore quite a large proportion of this group could be deterred from putting their house on the market if they had to prepare a Home Information Pack. These anecdotal findings were put to representatives of the DTLR when they visited some estate agency offices in the West Country in November 2001.

  On a personal note, I consider that there will be an effect on the housing market given our obsessions with house prices etc. While I fully appreciate that it is difficult to quantify the full effect of the legislation, a clue to its effect can be gleaned from the reaction of sellers to Home Information Packs in a report to the ODPM in March 2003 where it is stated that "The seller's immediate concern was the initial cost outlay of putting the pack together. Having to pay something to put your house on the market was a dramatic change from current practice and was viewed with a certain amount of concern." This reaction was from actual workshop reactions from real property sellers. Although hypothetical cost and transaction time savings can be put forward to show the merits of Home Information Packs, all too often British consumers use only one measure—actual cost, with cheapness being a prime selection criterion. Surely further consideration of any Home Information Pack legislation should be halted until a detailed Regulatory Assessment has been completed to include detailed research on its actual effect on the housing market, which is a vital component of the British economy.

  1.4.11  Home Information Packs—A sledgehammer to crack a nut? Under the proportionality section to the Principles of Good Regulation published by the Better Regulation Task Force it is stated that "Policy solutions must be proportionate to the perceived problem or risk . . . .don't use a sledgehammer to crack a nut." In the report on the British Seller's Pack Trial it was reported in paragraph 7.11 that "38% of sellers considered their experience with the seller's pack worse than expected" and in paragraph 9.4 that "The buyer's exist survey showed that only 23% felt that the pack helped them to decide whether to put in an offer." He same report stated that "one of the aims of the seller's pack was to help the buyer make an informed decision on whether to purchase." Yet only 42% consulted the Pack before making an offer. Again hardly a ringing endorsement of the Pack. The cost implications and possible impact of the proposed legislation have already been examined. The overall objective of the proposed legislation "is to reduce the high rate of transaction failure . . . ." In research which was conducted by the ODPM in 1999, 28% of offers made and accepted failed to proceed to completion." In the Bristol trial report, it was stated in paragraph 5.7 that "the failure rate [in the trial] was 25%"—a 3% improvement.

  In my opinion, one problem with any pack is the amount of detail it will have to contain, more especially if the property is a leasehold flat. In many instances, the detail and documentation will be too detailed for many purchasers in that they will find the contents of a large folder quite daunting. This is not to mention the cost of reproducing it for those who do not have access to the internet or other forms of electronic delivery. Surely it would be better for legislation to require property sellers to produce a summary or abstract of relevant information. For my own part, I consider that one of the fundamental shortcomings of The Home Information Pack proposals of is that none of the information contained in the pack will have been verified as being correct. This means that prospective purchasers would still have to have it verified as being correct, which will take time and then only perhaps discovered defects or anomalies in title/leases etc. I have been unable to think of any consumer purchase which will require such prescriptive action from a seller. Whilst it may be beneficial for some information to be provided, market prices usually reflect the amount of information which is made available to a purchaser. I would use the purchase of a car as an example. If two similarly aged and condition cars were being offered for sale, it is not compulsory for a car to be sold with an MOT. However if one car is being sold with full documentation and a current MOT and the other doesn't have a MOT, it is likely that the car with a current MOT and full documentation will sell more quickly and at a higher price. My contention is that emerging technological advances will make it much easier to provide detailed information on a property in the future. Will the sledge hammer of legislation be necessary in the future when e-conveyancing is in place? Surely it would be better to wait and review the situation once all the electronic components of the National Land Information Service. The Land Registry and the National Land and Property Gazetteer are up and running.

  1.4.12  Should Home Information Packs contain a Home Inspection Report? The inclusion of a compulsory Home Condition Reports (HCR) into a Home Information Pack will add an estimated £650 million per annum to home selling costs. Under the existing home buying process only about 25-30% of the purchasers commission a more detailed private survey. Most purchasers choose to rely on the mortgage valuation. The existing survey and valuation workload is carried out by about 2,500 qualified residential surveyors, whose average age is said to be 53. Mortgage lenders will not usually accept a valuation unless it has been prepared by a qualified valuer or surveyor. To qualify as a surveyor, it is necessary to complete a three or four year academic course followed by two years of practical training and assessment. Under the proposed new arrangements it is estimated that 7,500-8,500 home inspectors will be required. It is proposed that home condition work will be opened up to other professional groups and new entrants via a two year academic course.

  This means that Home Condition reports will be coming from a whole spectrum of persons. This could present major problems to the insurance industry which is meant to be providing insurance cover for home inspectors to cover their mistakes and also to purchasers in the form of hidden defects insurance. Mortgage lenders have also expressed concern. Whilst it is accepted that standards will be monitored by an accreditation body, which has already been established—SAVA (Surveyors and Valuers Accreditation). Could this body's credibility already been partially undermined in that it is both a training and examination organisation, as well as being charged with providing the additional 5,000 home inspectors. In most other fields, examination bodies and training organisations are separate entities. In the US, the Appraisal Foundation is charged with setting and maintaining standards. A director of that organisation, who was on secondment from an academic organisation, was forced to resign when it was found that he was usurping his position to steer practitioners towards his academic institution. The introduction of compulsory Home Condition Reports to say 2006 will require a least an additional 5,000 home inspectors to be trained by that time. To date, I have only been able to find about 800 surveyors who had become accredited to SAVA so far. If it were not compulsory to include a Home Condition Reports under the proposed new arrangements the possible logistical nightmare of having to train and assess so many additional home inspectors could be avoided.

  1.4.13  If a Home Condition Report is to be included in a Home Information Pack, could purchasers rely on it? In the Bristol Trial and in the more recent reports which examined the impact of Home Information Packs comment was made about the Home Condition Reports. Some sellers regarded HCR's as a "double edged sword" if their property was in poor condition and whether they could be relied on if the HCR had been commissioned and paid for by the seller. As the Home Condition Report will not contain a valuation, it will be difficult for prospective purchasers to assess whether the asking price has been set to take account of the condition of a property. When I raised this point with Dr Steve Nuttall from the DETR, he suggested that one possible course of action would be for prospective sellers to borrow more money from their bank or building society to carry out repairs before the property was put on the market. Is this really a realistic option?

  In the Bristol Trial report, it was stated that under paragraph 8.16 that "surveyors also believed that the system for allocating HCR's should be seen to be fair and open if the scheme is rolled out nationally. One idea that received strong support was that the surveyor be drawn at random from a pool in the local area. It was felt that this would stop the practice of estate agents steering the consumer in the direction of their "favourite" surveying firm". Under the proposed new arrangement, the buyer and or their estate agent could select a home inspector. That same home inspector could also work for the estate agent. In a recent letter from the Property Services Training Organisation it was stated that "conflicts of interest will not apply as Home Inspectors will be regulated through the certification scheme and will be required to undertake inspections with full impartiality." This is a situation which many surveyors feel uncomfortable with ie having to answer to both buyer and seller. Under the current system the surveyor acts on instructions received from the purchaser. I have on file a copy letter, which was submitted as evidence to a Congressional hearing in the US, where a seller client refused to pay an appraiser's bill for a pre-sale inspection because the appraiser commented on the poor condition of a ceiling. The same situation could occur here. If Home Condition reports are to be included in a Home Information Pack, more stringent safeguards will have to be put in place in respect of Home Inspector selection etc. Failure to put in place such safeguards could lead to a similar situation and one which was heavily criticised by both the Public Accounts Committee and the European Commission in respect of the Foot and Mouth outbreak "where farmers could themselves select a valuer of their choice with a clear potential risk of conflict of interest." The Public Accounts Committee was very critical of the old Ministry of Agriculture for allowing "potential recipients of compensation to select and appoint the valuers." Whilst the home seller is not going to receive compensation, the ability to select a Home Inspector of their choice might lead to a more favourable report and therefore a higher price easier sale etc. The situation of in-house estate agency Home Inspectors providing Home Condition Reports has to be viewed with concern, in my opinion, more especially as the commission which an agent earns from the sale of the property is derived from the sale price achieved. A higher price and a property reported to be in a good condition equals a higher fee earnt.

  In the partial Impact Assessment, which accompanies the Draft Bill, the average anticipated cost of a Home Condition report is shown as £285. The Home Condition Report is supposed to be based on the existing intermediate Home Buyers type survey. There is a suggestion that the average cost of a Home Condition report could reduce by increased competition from increasing the number of Home Inspectors. At the current time many existing surveyors are finding that their operating costs are increasing substantially ie Professional Indemnity and employer's Liability Insurance. Therefore the opportunity for reducing Home Inspection costs appears small, more especially when a comparison is made between the proposed cost of a Home Inspection Report and the current costs which the RAC and AA charge to undertake a pre purchase car inspection and report, namely from between £190-309.

  1.4.14  An alternative solution which embodies the aims of the proposed Home Information Pack legislation which would not require legislation or increase the costs of selling a home. All too often resistance to change can take the form of negative statements. In this submission, I have sought to illustrate what I perceive to be the major shortcomings of the proposed legislation more especially from a consumers point of view. I would conclude on a positive note by setting out how we believe that it is possible to achieve the same aims without the necessity to have to legislate or increase sale costs.

  In August 2000, I wrote to then Minister of State—Nick Raynsford to set out the initial concept for a process which we thought could achieve substantial improvements to the system of buying and selling a home. Despite sending a second letter to the Minister on 26 September 2000, no reply or even the courtesy of an acknowledgement was received from the department. In desperation, we wrote to the Chancellor and the No 10 Policy Unit asking whether the full implications of the then Sellers Pack proposals had been considered. This action had the desired effect in that two representatives of the department visited me in Southampton January 2001. Although the time spent appeared to be constructive, I had this feeling that there was a closed mind set and that "Sellers Packs" were the only solution.

  Undeterred by this apparent attitude, we started to evolve our concept and sought the views of others in the industry in this country and in the US. We have now completed the design process for a system and worked up operating models, attracted interest from within the industry as well as potential investors. In the US, positive responses were almost immediate from both government and the property industry. In the UK, the main problem has been the uncertainty as to Government's intentions over a period of four years and the failure of the original Homes Bill.

  1.4.15  Summary I fully support the principle of improving the process of buying and selling a home which include the providing of relevant information on a given property before it is sold. However is the proposed legislation the best solution, more especially when it appears to adopt the big bank approach with it being rolled out on a nationwide basis and made compulsory, I would therefore urge you to reconsider the following.

  1.  The total cost of assembling the Home Information Packs will be around £1.33 billion per annum with a net hypothetical saving of £350 million. What are consumers going to think of this massive increase in home selling costs, which effectively amounts to increasing the cost of each transaction by £505.

  2.  In the trial, transaction failures were only reduced by 3%.

  3.  The Land Registry's e-conveyancing project will take 10 years to complete and until it is complete the full benefits of Home Information Packs are unlikely to be felt.

  4.  Is the current and previous consultation exercise really meaningful when a comparison is made between the actions of the ODPM and the Lord Chancellor's Department, more especially as the only significant changes between the previous Homes Bill is the renaming of Home Information Packs from Sellers Packs and criminal sanctions have been replaced with civil penalties, together with reference to Home Information Packs appearing to be "the only solution" on the table.

  5.  Should legislation really be introduced when the partial Impact Assessment states that "there is no way of knowing" what the effect of the legislation will be on the housing market.

  6.  In the Bristol Trial, only 42% of buyers consulted the pack before making an offer.

  7.  The Australian approach seems measured and reasonable by requiring that a "contract for sale" is prepared before a property is marketed. If we have got to have legislation, why couldn't a similar requirement be introduced here without the necessity to have a prepare a large and detailed information pack to include a Home Condition Report.

  8.  Given the old and deteriorating condition of the housing stock in England, I would consider that the effect of having a condition survey on every property to be sold could have a major impact upon the housing market as some properties or whole areas could be blighted by their poor condition.

  9.  Is it really necessary to have every property surveyed prior to open marketing? In my experience the prime concerns of most buyers is whether they can get a mortgage on the property and that the price being paid is about right. A Home Condition Report will not address these two fundamental issues. Whilst it is fully accepted that the prudent approach is for a purchaser to commission a survey, do we have to impose that prudence on all. Consumers may grumble about the existing process of buying and selling a home but are they really prepared to pay upto £1.3 billion a year more for benefits which are very difficult to quantify. In Denmark where Home Information Packs are in existence the cost of selling a home averages about 6%. This has to be compared with our fee levels which are currently between one and 2%. Part of the higher cost differential in Denmark is attributable to providing Home Information Packs as part of the sales package and the higher calibre of estate agents who are necessary to work with their system.

  10.  How much more, if anything, are consumers in England and Wales prepared to pay to sell their home. From the partial impact assessment, it appears that the costs far outweigh the benefits, whereby I would consider that home sellers are unlikely to want to pay any additional costs, let alone up front costs to put their home on the market. Could compulsory Home Information Packs be a step too far and one which could be seen as a threat to our obsession with residential property which is all too often regarded as an investment rather than a home?

  11.  Most home sellers and some sections of the media will probably only look a the increased sale costs associated with Home Information Packs in that the cost benefits are very difficult to quantify, more especially when we are currently used to putting a home on the market with no up front costs, delay or pre planning. With the advances that are taking place with technology and the advent of electronic conveyancing wouldn't it be better to re-evaluate the necessity to introduce Home Information Pack legislation and see whether a market led solution, such as the one which we have formulated, could be utilised.

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