Examination of Witnesses (Questions 120-139)
RT HON
RUTH KELLY
MP, MR PETER
UNWIN AND
MR RICHARD
MCCARTHY
4 DECEMBER 2006
Q120 Chair: May I just clarify? Would
that include information on redundancies where it was said that
they were only available at disproportionate cost?
Ruth Kelly: Most HR information
is readily available and should be provided.
Chair: That is very helpful. I shall
draw the attention of the relevant MPs to the fact that they can
put their questions down again.
Q121 Sir Paul Beresford: Is it possible,
if it is not voluminous, to see a copy of the guidance? That might
help the Committee.
Ruth Kelly: Of course.
Q122 Mr Betts: It is fair to say
that Home Information Packs are one of the Government's flagship
projects as far as owner-occupiers are concerned. It is probably
a bit extreme to say that the policy has capsized, but it is certainly
not going ahead with as much speed as one would have hoped. Is
it not a bit disappointing that, given the discussions and debates
and questions we had in this Committee when we considered the
draft legislation and in the Standing Committee and on the floor
of the House at report stage, concerns that the mechanics were
not going to be in place and all the inspectors were not going
to be trained to enable this project to go ahead in the time period
that had been set, effectively the permanent secretary came to
us last week and said that is exactly the case, that we do not
have enough trained inspectors, we do have problems with the CML
and really we could not go ahead with mandatory home condition
reports because of that?
Ruth Kelly: Of course Home Information
Packs are going to be introduced as from June of next year and
indeed a central element of that will be energy performance certificates
but there will be other elements. The central policy change was
that the home condition report should not be made mandatory, particularly
at the same time as the introduction of the rest of the Home Information
Pack. There are various reasons for that but a large part of the
rationale for it, was that new information became apparent in
the summer. It is absolutely clear to me and clear to everyone
in the department that there were inefficiencies in the system,
that we wanted to speed up the process to make it more certain,
that we wanted to cut costs for the consumer as well as improving
the environment. I looked at Home Information Packs from that
perspective. As far as costs to the consumer were concerned a
recent CML report , Council of Mortgage Lenders report, had made
it clear that many lenders would not have automated valuation
models in place. This meant that a large number of consumers would
end up paying, both for a home condition report and a valuation
from the mortgage lender.
Q123 Mr Betts: That bit of information
is not exactly new is it?
Ruth Kelly: It was new. It was
new information from the Council of Mortgage Lenders who made
it clear that a significant majority of mortgage lenders would
not have automatic valuation models in place until 2008-09 and
that piece of information, while it had been a risk before the
summer, became absolutely clear and crystallised; that risk crystallised
in the CML report. My test in all of this, the principle at the
bottom of this, is that what we should do is act in the interests
of the consumer. Given that those benefits to the consumer would
not be fully realised until automatic valuation reports were in
place, I thought that was a reason for proceeding in a different
fashion. First of all making home condition reports optional,
secondly introducing energy performance certificates, which were
incredibly relevant to combating climate change at that time and,
thirdly, taking into account the really practical considerations
that if we were to be absolutely clear that we were going to see
energy performance certificates introduced on 1 June as planned,
it made sense to concentrate on that objective and then to work
with the market to see if we could encourage a voluntary take-up
of home condition reports. Home condition reports could, in due
course, provide very significant benefits to consumers, which
is why we are trialling the introduction of Home Information Packs,
some including and some not including the home condition report,
and why we are continuing to work with the market to see whether
home condition reports can have widespread take-up. Indeed, just
today I have learnt that ASDA intend to offer free Home Information
Packs to consumers. The only cost would be if a seller subsequently
sold through another estate agent, in which case they would be
charged the current market rate. Given the rate at which this
market is changing, it is right that we reflect on those changes,
that we work with the market and we try to maximise benefits to
consumers.
Q124 Mr Betts: What would be seen
as a success in terms of voluntary take-up? Would it be 95%, 90%,
80%? What would you think about coming back and saying actually
you are going to have to make it mandatory now because the voluntary
take-up simply is not working?
Ruth Kelly: The test is that we
maximise benefits for consumers and that is why we have designed
the trials in the way that we have; that we test how popular they
are, what the benefits are versus the cost, whether people like
to have the home condition report and see that as valuable or
whether they prefer the Home Information Pack without the home
condition report. The trial has been set up in such a way that
we can learn from them and introduce what is a proportionate response
to the issue that we are facing here.
Q125 Mr Betts: Do you not think that
there is some responsibility on the Government though sometimes
to protect people who are undertaking a major transaction from
consequences that may happen, but which people do not foresee?
In other words, people do not have a survey done, they find they
have difficulties down the line, they get into all sorts of problems
and they wish they had paid that bit of money up front. Was one
of the things about the mandatory HCRs not that this Government
would have been able to protect people from the consequences if
they felt they might take a risk but eventually the worst happened
and they rather wished someone had protected them?
Ruth Kelly: Of course and we want
to protect consumers just as we want to maximise the benefits
to consumers. We have to introduce home condition reports and
Home Information Packs in a way that is likely to maximise those
benefits. We are looking at this in the round and given that the
market is changing so rapidly and given that automated valuation
models are likely to be in place by 2008-09 or thereabouts, that
we shall have to see how that market evolves, given the introduction
of e-conveyancing, given the changes in the nature of the market
with new entrants entering almost on a regular basis and ASDA
being the latest entrant, we thought it was right to try to encourage
a voluntary take-up, to test in a very detailed fashion what the
actual benefits to consumers were and to minimise the implementation
risks to consumers as well by not going for a big bang approach.
Q126 Mr Olner: Who do you think are
the consumers, the sellers or the buyers?
Ruth Kelly: Both.
Q127 Mr Olner: So which do you put
the emphasis on? The whole idea of home condition reports was
to save sellers from constantly having to do a report every time
a buyer dropped out of the market. For the life of me, I cannot
understand why we gave way to pressure and stopped introducing
it.
Ruth Kelly: Clearly sellers and
buyers both have a stake in the process. They both want to see
an efficient process which has the lowest possible costs attached
to it.
Q128 Mr Olner: We gave in to vested
interests did we not? We gave in to those who do a valuation and
do a report for each buyer instead of the seller saying he has
a report, it does not matter how many buyers come to him he has
a report that says what the condition is. We ran away from that.
Ruth Kelly: Absolutely not. We
are still completely committed to the voluntary uptake of home
condition reports and if our approach does not work, then the
mandatory option still remains on the table. Given that the market
is changing so rapidly, given the new evidence in the summer from
the Council of Mortgage Lenders about our automatic valuation
reports not being in place at the time when we thought they were
likely to be in place, given that that would have meant potentially
that some consumers, indeed many consumers, would have had to
pay twice for the valuation of their home, it just was not sensible
to proceed on the basis of a mandatory approach. We can maximise
the benefits by introducing the energy performance certificate
in June of next year, by concentrating our focus on the practical
implementation of that, by introducing the other elements of the
Home Information Pack which are also important to speeding up
the process and by working with the market and through the trials
to try to maximise the benefits of home condition reports. In
that way we get the best deal possible for both the buyer and
the seller.
Q129 Mr Olner: Given that we have
gone into a £4 million dry-run testing implementation of
the packs in various areas, we are not really gaining anything
from that, are we? Sellers in those areas are able to complete
and sell without completing the pack at all. We are gaining absolutely
nothing at all. The buyers and sellers are really not gaining
anything. If you have a voluntary basis, it needs to be completed
and it is not being completed. Half way through they can say no,
they are not going to do it now; they are going to sell the property.
Ruth Kelly: First of all, Home
Information Packs are being introduced from 1 June of next year.
A very important part of that will be the energy performance certificate,
but there are other parts such as the legal documents and searches
and so forth. The second point is that the home condition report
will be made available; it will be an authorised part of that
pack. People can take it up if they think the benefits justify
that. The overwhelming majority of people involved in the market
currently think that home condition reports are a good idea. We
have a rigorous process of trials in place. We are introducing
the trials or planning the trials in four consecutive phases.
In the first phase we are offering free Home Information Packs,
some of which will have home condition reports within them, some
of which will not, in order to kick-start the trials. The second
phase of the approach is to make the mandatory elements of the
pack free. The third phase of the trials is a no-sale no-fee basis
and the last phase of the trials will be to have no subsidy at
all, so the seller will pay the full cost of the pack. By designing
those trials in the way that we have done, we shall be able to
measure what the consumer benefits are and how popular the Home
Information Pack is and indeed the element associated with the
home condition report and that will enable us to make much better
decisions in the future about how and when or whether we need
to take a tougher approach. I am convinced that the market is
changing in such a way that consumers will want this, the buyers
will want this, the sellers will want a home condition report
and in fact it will be in the interest of estate agents ultimately
as well because the nature of the market is changing.
Q130 Mr Hands: To follow up previous
questions, one from Clive Betts on the criteria that you will
be using before you might make them compulsory, presumably, there
will be a certain percentage take-up of the voluntary aspect and
would it perhaps be 50%? If 50% were now providing HCRs, would
you then look to make it compulsory or is the threshold much lower?
The second question is about what the CML was saying over the
summer. The CML have been saying for some time that they did not
have these valuation models up and running and it seems a little
bit odd that you seem to have contracted out government policy
to an outside organisation like the CML which, to be fair to them,
have been saying for some time that the models are not there.
It seemed, particularly on 18 July, or in the days before 18 July,
that that was new from the CML because I did not see anything.
Ruth Kelly: On the first part
of your question, there is not going to be a target take-up. The
test will be the consumer benefit and the consumer benefit is
at the heart of these proposals and the area trials will be judged
according to that test. For instance, there could be a very low
take-up, but it could be apparent to everyone that huge benefits
were involved in having a home condition report in place. That
would make us think really hard about the policy. It could be
that there is a very high uptake, but actually the consumer benefit
is not very apparent. We have to make a sensible judgment on the
basis of the evidence in front of us with the criterion being
what is in the best interests of the consumer. Partly, that will
depend in itself on the nature of the market at that time and
at what pace automatic valuation rolls out and which new entrants
there are.
Q131 Mr Hands: So it is going to
be a subjective judgment.
Ruth Kelly: Judgment is always
subjective. If you have an objective judgment, tell me about it.
We make judgments on the basis of objective facts and on the basis
of evidence. What we are collecting here is evidence about the
likely consumer benefit and when that consumer benefit will most
likely be realised.
Q132 Mr Olner: I understand what
the minister is saying, but I still need to get clear in my own
mind and we still need to get clear for the record who the paramount
consumer is, the buyer or the seller.
Ruth Kelly: Practically everyone
is, both the buyer and the seller. Apart from first-time buyers
or people who are selling at the end of their time in the property
market, most consumers are both.
Q133 Mr Hands: My question on CML.
It does not seem to me there was anything new just before 18 July.
Ruth Kelly: It was pretty clear
to me at the time that they had newly published research, indeed
I have the newsletter in front of me as I speak that talked about
HIPs and also the fact that automatic valuation reports were not
going to be introduced at the time that had been expected. In
fact, it says that many lenders believe that the delay in setting
technical standards means they may not be ready to connect to
HCRs until 2008 and 2009 and that was on 4 July.
Q134 Chair: Does it not follow then
that when your automated reporting systems are available, that
is when the home condition reports will be made mandatory?
Ruth Kelly: No, that is when the
consumer benefit is more likely to be maximised. There could well
be very significant consumer benefits between now and then, but
if consumers are forced to have two valuations, one for the purpose
of their mortgage lender and one through the home condition report
system, then that is not the most efficient and effective way
of maximising consumer benefits. Over time different lenders of
course will proceed at different rates and that balance will change,
but actually the more consumer benefit is likely to be realised,
the greater the likelihood that these will be taken up on a voluntary
basis.
Q135 Mr Betts: Back to Mr Olner's
point about buyers and sellers, you quite rightly made the point
that first-time buyers are not sellers, but in that case they
do not have a choice do they? If the seller of the house that
they are wanting to buy is saying he is not going to have an HCR,
he is just going to do the HIP without it, then the first-time
buyer actually has not got a choice of having the HCR?
Ruth Kelly: They can buy a survey,
which is what you do at the moment.
Q136 Mr Betts: But then the costs
go up. If two or three first-time buyers are after the same property,
they are all going to pay for a survey and the costs go up and
it defeats exactly the object of the policy.
Ruth Kelly: With respect, you
are making the argument for home condition reports which is of
course the argument why the Government went down this route and
one of the benefits was to transfer costs away from first-time
buyers and that remains a very significant benefit of the system.
It is why we are trying to encourage this on a voluntary basis.
We shall go down the route of trying to introduce this in the
way that is most likely to maximise those benefits. Having looked
at this in the round, having thought about the changing nature
of the market which is not just about automated valuation models
but is also about the introduction of e-conveyancing, new entrants
into the market and so forth, including the recent information
from ASDA as an example of that, given the fact that we absolutely
have to introduce energy performance certificates on 1 June next
year for very good environmental reasons, I thought that our primary
focus should be on achieving those ends while we test in much
greater depth and detail the likely consumer benefits to be realised
through the introduction of Home Information Packs and home condition
reports within them.
Q137 Anne Main: Do you feel that
your voluntary code for sustainable homes is a sufficiently strong
mechanism to meet the climate change requirements? Do you feel
that enough was suggested by the Government, in the Queen's Speech
in particular, that was looking at addressing the issues to do
with older housing meeting climate change requirements?
Ruth Kelly: First of all, let
me just say that I want DCLG as a department to be seen as a green
department and in fact when I came to this job, there were many
environmental stakeholders who said that it was our department
that would make the most contribution to this agenda or had the
potential to make the most contribution to this agenda domestically
within Government. We have been taking this issue extremely seriously
and looking right across the piece for existing homes, which you
referred to, and the new code. Building regulations, for example,
are improving the energy efficiency of new homes by 40%.
Chair: We know all about building regulations.
The question asked was about the code.
Q138 Anne Main: The voluntary code.
Do you think being a voluntary code is a strong enough mechanism
and what are you doing to try to raise the environmental footprint
of older housing stock? What actual measures?
Ruth Kelly: First of all let me
talk about the code for sustainable homes which we are just about
to come to, because I shall be making a speech on this and other
issues very shortly. We are in the process of thinking through
our approach to this. First of all, it makes a major contribution
to tackling the climate.
Q139 Anne Main: Voluntary, that is
the aspect I am trying to get at. Is being voluntary good enough?
I am not actually that interested in the code itself: I am talking
about how we implement it.
Ruth Kelly: Absolutely and I was
just getting onto that point. The code will define the trajectory
for improvements in buildings. That means it will set out the
future path in building regulations.
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