APPENDIX: ADDITIONAL INFORMATION (SI 2007/1667
AND SI 2007/1669)
Home Information Pack (No 2) Regulations 2007
(SI 2007/1667)
Energy Performance of Buildings (Certificates
and Inspections) (England and Wales) (Amendment) Regulations 2007
(SI 2007/1669)
Letter from Baroness Andrews, Parliamentary Under
Secretary of State, Department for Communities and Local Government,
to the Chairman
I am writing to follow up in more detail the documents
already laid in the House relating to the Home Information Packs
(No.2) Regulations 2007 and Energy Performance of Buildings (Amendment).
We understand from your clerk that the Committee might find it
helpful to have some more information on some of the points covered
in our explanatory memorandums.
There are a number of issues that I feel would benefit
from the provision of further information, each of which I believe
are of particular interest to the committee. These are:
- Linking EPCs to HIPs;
- Age of the EPC;
- Justification for voluntary take up of HCRs;
- Phasing the introduction of HIPs from 1 August;
- Stakeholder engagement with HIPs.
Linking EPCs to HIPs
As you know, EPCs are required by the Energy Performance
of Buildings Directive and are intended to provide valuable information
to enable purchasers to assess and compare the energy performance
of buildings and help improve the energy efficiency of a building.
An EPC must be commissioned by the seller and made available to
a prospective buyer at a time in the conveyancing transaction
which enables both these purposes to be achieved. The requirement
to provide it should also arise in circumstances which assist
the enforcement of the obligation.
For this information to be effective it:
- needs to be provided early on in the home buying
and selling process; and
- must be accurate.
One of the key aims of home information packs is
to provide consumers with information early in the home buying
and selling process to help them make informed decisions about
a property. It is clear that there are aligned benefits in providing
home information packs and energy performance certificates early
in the process. Therefore, coupling the two policies for domestic
marketed properties minimises the additional burdens on home sellers,
and provides home buyers with more information earlier in the
process, to help inform their choices on purchasing a property.
In addition it should be noted that the Directive
requires EPCs on rentals as well as sales. Many rentals will be
short-term tenancies where there will be no separate exchange
of contracts before completion of the grant of the tenancy. In
such a case, if provision of an EPC were to be delayed until the
next easily definable point in the transaction, it may not be
provided until the tenant was about to be legally committed. There
are clearly advantages in having one consistent rule for sales
and rentals as it makes it much easier for agents and the public
to understand and comply.
The purposes of both the Directive and our policy
objectives for reforming the home buying and selling process are
best served by providing information in HIPs before a purchaser
has made any decision in principle to purchase the property.
Age of the EPC
The maximum age of the EPC is set by the Directive
at 10 years. We believe strongly that climate change is important
enough to justify going further than these minimum EU requirements.
Our proposals will achieve more carbon savings and offer better
value than simply replicating the provisions of the Directive.
As stated in the Government's recent energy white paper ('Meeting
the Energy Challenge' published in May 2007), 'The average household
could avoid emissions of around 0.5 tonnes of carbon a year, save
energy and lower energy bills by becoming more energy efficient.'
The Energy Performance Certificate is a key part of the strategy
set out in the Energy White Paper to increase energy efficiency
in our homes and help tackle climate change.
If we are serious about tackling climate change,
it is vital that consumers have accurate information about the
energy efficiency of their homes. Many home buyers and sellers
make improvements to homes just before selling or just after buying
a home. That's why it's important they receive accurate energy
ratings on their homes through EPCs, which will recommend effective
measures to help cut fuel bills and carbon emissions. Out
of date information will not be as accurate or useful to a homeowner
in helping them make decisions about energy efficiency improvement
measures. For instance, energy prices increased by 53% for gas
and 23% for electricity between 2002 and 2006. The recommendations
for an EPC produced in 2002 would be based on outdated energy
prices and would not provide owners with reliable information
on which to decide which energy efficiency improvements they should
make.
We believe the approach we have put forward is the
right one. However, in response to the RICS judicial review, the
Department has agreed to consult further on this issue. Ministers
will decide whether to make further amendments to the regulations
in the light of the results of that consultation. In the meantime,
the maximum age of an EPC when a property is first marketed will
be increased to 12 months to ensure that no one is required to
produce a second EPC for a property before the consultation has
been completed and decisions have been taken in the light of the
responses made.
Voluntary HCRs
The decision to introduce home condition reports
(HCRs) on a voluntary rather than mandatory basis was not made
lightly. We agree that the HCR has the potential to deliver further
benefits on top of those already realised in the rest of the HIP.
We expect that consumers and the market as a whole will recognise
this added value and choose to include a HCR on a voluntary basis
from 1 August.
It is evident from the challenge the Department has
faced in ensuring that there are enough energy assessors to produce
Energy Performance Certificates for 1 June that a "big bang"
approach to mandatory HCRs would not have worked. The numbers
of home inspectors that would have been required for mandatory
HCRs for 1 June would have far exceeded the numbers of energy
assessors required. However, as Yvette Cooper made clear on 18
July 2006, the mandatory option for the HCR remains on the table.
One of the key aims of the 6 area trials that have been running
since November 2006 and the further 2 that were added in February,
is to understand how to maximise the take-up of HCRs to demonstrate
and accelerate the benefits of HIPs. The trials will report back
later this year and will help inform our ongoing policy on the
content of HIPs.
Phasing the introduction of HIPs
As the Secretary of State announced on 22 May 2007,
the requirement to have a home information pack, including an
energy performance certificate (EPC), when a home is marketed
will be rolled out in phases, according to the size of the property,
measured by the number of bedrooms. This was not covered in detail
as part of the explanatory memorandum. I would therefore like
to take this opportunity to elaborate further on these phasing
proposals.
It is envisaged that there will be three phases of
implementation for HIPs. Each phase will be activated by a commencement
order. The first order, which has now been made, requires all
homes marketed with 4 or more bedrooms on or after 1 August to
have a home information pack.
The use of the number of bedrooms as a phasing mechanism
was preferred after consideration of a number of other technical
options. The average sale price for a 4 bedroom home is around
£120,000 more than for the average 3 bedroom. The suggestion
that people would want to devalue their property by that much
by describing bedrooms as otherwise for the sake of around £450
- costs which apart from a £100 EPC, already exist in
the homebuying and selling process and which could help the property
sell more quickly - seemed illogical and very unlikely. The
use of bedrooms as marketed is a clear and recognisable criteria.
When such properties are marketed with 4 or more bedrooms, it
is easier for enforcement officers to police them to ensure they
comply with the regulations.
Further phases will be commenced for homes with 3
bedrooms and all other homes and the criteria to be used for rolling
out the next phases of HIPs implementation will be:
a) whether sufficient home inspectors (HIs) and domestic
energy assessors (DEAs) have been certificated or accredited to
meet demand;
b) whether the regional distribution of HIs and DEAs
will ensure an adequate supply of EPCs; and
c) in assessing a) and b), taking account of the
lessons learned from the operation of HIPs.
We expect that in order to meet the three criteria
for 3-bedroom homes it will be necessary to have 2000 Home Inspectors
(HIs) and Domestic Energy Assessors (DEAs) in place. Based on
current evidence, to cover the whole market, we expect to need
a total of 3000 HIs and DEAs in place. We believe these are prudent
figures that will ensure the smoothest possible transition in
the market.
Stakeholder Engagement with HIPs
We believe that the home information pack will deliver
positive change in the home buying and selling process. By increasing
transparency and competition, HIPs will provide a platform for
market-led innovation, leading to more radical transformation
of the market and improvements driven by innovation and the use
of new technology. We are already seeing evidence of stakeholders
taking the initiative to deliver this transformation in anticipation
of HIPs:
- more than 50 local authorities have reduced their
official search fees by an average of 20%;
- groups of solicitors have come together in some
localities to agree the list of searches that are required in
their area; helping to eliminate the delay that can be caused
when a buyer's legal adviser advises that a specialist search
should be conducted before a transaction can go ahead;
- some pack providers are already offering legal
summaries that set out what the documentation in the pack means
in simple non-technical terms;
- some estate agents have indicated that they intend
to offer HIPs on a "no sale no fee" basis, or even for
free.
As you know, strong and continued support has also
been shown for the introduction of HIPs including EPCs and their
effect in helping to tackle climate change. Both Friends of the
Earth and the World Wildlife Fund have announced their support
for the introduction of EPCs for domestic properties, while the
Energy Saving Trust also highlighted the importance of providing
energy information up front in the home selling process.
I trust that this additional information will convince
you of the strong arguments for the approach we have taken and
the progress we have made since you last considered the regulations
in March.
15 June 2007
Memorandum by the Royal Institution of Chartered
Surveyors
1. The Royal Institution of Chartered Surveyors (RICS),
the mark of property professionalism worldwide, has expressed
concern about the detail of the new regulations for the implementation
of Home Information Packs (HIPs). RICS' overarching concern is
that the new transitional arrangements do not conform to the government's
principles of Better Regulation and will present problems for
enforcement authorities, agents and buyers and vendors. RICS does
however give an unequivocal welcome to mandatory Energy Performance
Certificates and would like to see the concept rolled out to all
residential property together with information, education and
incentives.
2. The Home Information Pack (No 2) Regulations 2007
[SI 2007/1667] were laid before both Houses of Parliament on 11
June 2007. RICS has identified a legal loop-hole whereby sellers
need only prove that they have ordered a Home Information Pack
(HIP) at the point of sale, saving them the costs associated with
the Government's new regime. Others will order and pay for the
pack upfront, creating an uneven playing field for consumers and
agents alike.
3. The transitional arrangements may cause confusion
for consumers and in some cases they may be financially disadvantaged
by the requirements to phase in Home Information Packs commencing
with four bedroom houses on 1 August then reducing to three, two
and one bedroom houses thereafter. Unless sufficient resources
are provided to enforce the phased and transitional Home Information
Pack requirements fairly and consistently, those professionals
who abide by the spirit of the requirements will find themselves
at a disadvantage compared with those who follow the letter and
decide to take advantage of the loopholes.
4. RICS' judicial review proceedings were intended
to call the government to account of a lack of consultation or
justification on its gold plating of a European Directive. RICS
is now concerned that the government's approach to rolling out
the Home Information Pack over a five month period (as stipulated
in the transitional regulations) of uncertainty and confusion
is not helpful and could have been better managed with a longer
period of reflection and proper consultation with industry experts.
Judicial Review has been stayed pending a new 12 week public consultation,
but it could be re-activated.
Energy Performance Certificates
5. RICS remains unequivocally committed to the delivery
of Energy Performance Certificates and would like to see the concept
rolled out to all residential property together with information,
education and incentives for home owners to act upon the reports.
It is essential that there is a flexible, market led approach
to Energy Performance Certificates to bring real environmental
benefit, reduce visits to homes and save consumers money.
6. RICS unequivocally supports measures to tackle
climate change, but does not believe that the current proposals
for introducing them via the Home Information Pack will have the
impact that the Government is claiming. It is time to de-couple
the outdated Home Information Pack from the mandatory Energy Performance
Certificate and enable consumers to fight climate change in a
coherent and cost effective manner.
The Wider Context
7. RICS believes that Home Information Packs in their
present state are insufficient to meet the main challenges to
home buying and selling, and that much more can be done to build
on industry initiatives and technological advances. At an estate
agency industry forum on 7 June, chaired by Sir Bryan Carsberg,
RICS and NAEA jointly tackled key issues in the context of home
buying and selling; regulation and redress in the estate agency
sector. It also committed to tackling the problems in transaction
flow which RICS maintains the government needs to tackle if the
availability, quality and flow of information in transactions
are to be improved. Leasehold information and the quality and
availability of searches are the two key issues.
8. RICS believes that with proactive, effective regulation
of this important sector, many of the improvements government
seeks in order to enhance the public's experience of buying and
selling homes could be achieved. It is evident that there is a
common goal.
June 2007
Memorandum by Friends of the Earth
1. Friends of the Earth welcomes this opportunity
to give our views on the above instruments.
2. Firstly, it is important to point out that Friends
of the Earth does not have a position on Home Information Packs
(HIPs) beyond their role as a vehicle for Energy Performance Certificates
(EPCs).
3. Friends of the Earth strongly rejects the charge
of 'gold-plating' levelled at the proposed model of implementation
of EPCs by the Better Regulation Commission (BRC), the Conservative
Party, RICS and others. We think the Government's chosen model
of implementation represents a sensible one designed to maximise
the environmental effectiveness of the certificates. If anything
the Government has been much too cautious in its refutation of
the 'gold-plating' charge.
4. Specifically those alleging 'gold-plating' typically
make three claims:
1 That the Directive stipulates that EPCs have a
ten year lifespan rather than a new one being required each time
a home is sold.
2 That EPCs could be produced at any point during
the home buying process.
3 That the Directive does not require them to come
in until 2009.
5. Friends of the Earth disagrees with each point.
6. Firstly Article 7 of the Energy Performance of
Buildings Directive states that "The validity of the certificate
shall not exceed 10 years"; it does not state that the lifespan
must be 10 years.
7. More importantly, going for the maximum 10 year
lifespan would make it very difficult to fulfil the second section
of that article which states that: "The energy performance
certificate for buildings shall include reference values such
as current legal standards and benchmarks in order to make it
possible for consumers to compare and assess the energy performance
of the building. The certificate shall be accompanied by recommendations
for cost-effective improvement of the energy performance."
8. Ten year old information on the cost of cavity
wall insulation or the most efficient boiler would be entirely
useless. It would be worth the Committee imagining what a ten
year old EPC received today might look like. Not only would all
the costs of measures be ten years out of date, but it would be
highly unlikely to have either an email or web address for more
information, and any phone numbers would more than likely be wrong.
Indeed it could be argued that the Government is not actually
going beyond the minimum implementation of the Directive at all,
merely constructing a model implementation which allows both parts
of Article 7 to be met.
9. On their second 'gold-plating' accusation, it
is correct that the directive does not require EPCs to be provided
at the first point of marketing, but there are strong arguments
why bringing it forward in the process is a sensible move. Firstly,
making energy performance one of the first pieces of information
that potential buyers see about a property will increase its relative
importance, encouraging sellers to make changes before going to
market and buyers to act. Secondly, it will maximize the length
of time a buyer has to arrange for work to take place on the property
to significantly raise the energy performance before they move
in (research shows that the period when a property is empty is
when homeowners are most likely to undertake more major work such
as solid wall insulation). Prospective buyers will be able to
take the EPC to mortgage lenders who may be able to use the information
to offer them access to new 'green' mortgages (to improve the
property) as these are developed or other financial products.
10. Thirdly, the suggestion by the BRC that just
because the EPC could wait until 2009 to come in, it therefore
should, is ludicrous. Everything we learnt from the Stern Review
and the UN work on climate change shows that urgent action is
needed now and the economic cost of acting immediate is lower
than the cost of waiting to take action. The recent UN IPCC report
on climate change mitigation measures identified energy efficiency
measures as having the potential to considerably reduce CO2
emissions while having net economic benefits and positive social
welfare impacts.
11. Not only is the charge of 'gold-plating' misplaced,
but Friends of the Earth believes the term itself is unhelpful
and inaccurate. This is a pejorative term which implies that any
environmental regulation that goes beyond the absolute minimum
is an unnecessary burden and to be accepted only under extreme
circumstances.
12. Friends of the Earth believes that, if the UK
wants to show leadership in tackling climate change, we should
be seeking to have the best and most ambitious environmental regulation
in Europe rather than the weakest.
13. Lord Davidson stated in his recent report on
the implementation of EU directives that "it is sometimes
beneficial for the UK economy to set or maintain regulatory standards
which exceed the minimum requirements of European legislation.
The EU may not always set the most appropriate level of regulation.
The decision to introduce or maintain higher standards or stricter
regulatory regimes than is required by EU directives could bring
benefits as well as costs".
14. We agree with Yvette Cooper when she told the
House of Commons on 16 May: "we are going beyond the minimum
requirements for energy performance certificates set out in the
EU directive. However, that is not gold-plating; it is green-plating,
and we make no apology for that."
Comments on the interim measures:
15. Friends of the Earth strongly supports the Government's
chosen model of implementation of EPCs, however we have concerns
about the interim measures contained in the Statutory Instruments
being considered.
16. Under the circumstances where there was such
a significant shortfall in the numbers of accredited Energy Assessors
(EAs) being available for the 1 June launch, we believe the Government
had no choice but to take some form of action.
17. The Government has stated that, rather than setting
firm dates for the role out of EPCs to homes beyond those with
4 bedrooms, it will wait for the EAs to become available. This
seems a perverse logic and could actually serve to slow the rate
at which Energy Assessors become accredited rather than increase
it.. Setting firm dates would have make it clear to EAs in training
that the demand will exist for their skills once they are accredited,
whereas the existing plan gives little certainty. This has not
been helped by statements by the Secretary of State for Communities
and Local Government which failed to give a firm guarantee that
EPCs would be required on all homes even by the end of the year.
18. We also disagree with the decision to allow sellers
to commission EPCs at the point of marketing but not provide them
until exchange of contracts. It is important during the first
days of EPCs for consumers to become familiar with the certificates
as they are going to exist in the future (after the rules revert
to an obligation to provide an EPC at the first point of marketing),
so that the advantages of the certificates for potential buyers
become clear.
19. The decision to delay by two months and phase
in by bedrooms and suspend the requirement to provide an EPC upfront
has served to create further confusion. Friends of the Earth thinks
that a simple short delay, plus a decision to meet the accreditation
costs of trained but unaccredited EAs, would have indicated that
the Government was not being blown off course and that it was
firm in its choice of model of implementation.
20. We believe the interim measures are an over-reaction
to both the RICS legal challenge and the shortage of accredited
EAs. While the problems with the interim arrangements should be
pointed out and the Government deserves criticism for its handling
of the introduction of these measures, we see no value in further
compounding the confusion and uncertainty by rejecting the interim
measures in the absence of firm evidence that they are failing
(or even hindering) to bring forward the accreditation of the
required numbers of energy assessors.
21. Friends of the Earth continues to believe that
EPCs are a crucial policy for tackling the contribution to climate
change from our homes and will continue to push for their rapid
introduction in a manner that maximizes their environmental effectiveness.
June 2007
Letter from Michael Ockenden, Director General,
Association of Home Information Pack Providers
As the Director General of the Association of Home
Information Pack Providers, (AHIPP) I write in regard to the above
Statutory Instruments that were laid on the 11 June 2007.
AHIPP members come from across the property industry
including pack providers, conveyancers, surveyors, property portals,
estate agents and search providers.
In order to assist the work of the Select Committee
on the Merits of Statutory Instruments Committee in reviewing
the above HIP and EPBD regulations I enclose a short paper [printed
below] that gives the industry perspective on this important
reform of the house buying process.
Industry believes that the above regulations will
deliver real benefits to the housing market. HIPs will dramatically
increase transaction transparency and reduce uncertainties and
the time taken from offer to completion. For your interest I also
enclose data evidence[5]
that demonstrates the worsening delays that UK consumers currently
suffer during the house buying process.
The HIP industry was ready for the 1 June mandatory
national roll out, and in light of the amended regulations, are
fully confident that the phased implementation from 1 August will
be successful and popular amongst all those involve in the house
buying process.
June 2007
Memorandum by Paul Broadhead, Deputy Director
General, Association of Home Information Pack Providers
Housing Act 2004, Part V:
The benefits of a major reform.
Summary
1. Home Information Packs (HIPs) will become compulsory
on a phased basis from 1 August 2007. Their passage has been tortuous
and subject to a great deal of controversy. The introduction of
HIPs has not only been opposed by certain vested interests but
has also become political and they have been the subject of much
misinformation.
2. This paper serves to outline briefly the benefits
that HIPs will bring to home buyers and sellers as well as the
housing market as a whole, the economy and communities in general.
It seeks to dispel the myths that have abounded concerning HIPs
and to provide reassurance to the public that this reform will
serve to benefit home buyers and sellers hugely in the years to
come.
3. The benefits are summarised as:
Direct benefits to the buying and selling process
- Less Transaction failure
- Reduction in wasted costs
- Greater speed and certainty
- Less stress
- Reduced costs of buying and selling over time
Indirect benefits to the process and the environment
- Accelerated reform of Local Authority Searches
- Reform of leasehold Information Services
- Move to unconditional mortgages at the point
of sale
- Lower cost of entry into the market for first
time buyers
- Reduction in carbon emissions from homes
Long Term Structural community benefits
- Reduction in cost of stress to the economy
- Greater mobility of the workforce
- New profession offering new careers to a wide
diversity of people
Introduction
4. The Home Buying and Selling process in England
and Wales has not been the subject of major review or reform since
1925. Due to a number of factors the process has become inefficient,
expensive and extremely stressful for home movers. One in four
transactions fail between an offer being accepted by a seller
and completion and this wastes around £1million per day of
consumers' money.
5. One of the primary causes of transaction failure
is a flawed information gathering process. Information on properties
is obtained after buyers have had an offer accepted. This means
that they are ignorant at the time of making an offer of any matter
which would have influenced their buying decision. When that information
becomes available later in the process it can cause buyers to
pull out, and as many properties are bought and sold in 'chains'
it can cause the failure of a whole series of transactions.
6. Another cause of failure is simply the time that
transactions take to reach the point of exchanging contracts.
The process moves slowly in many cases because of the time taken
to procure information, a process that only commences in the present
system once a seller has accepted a buyers offer.
7. This paper aims to set out the long term benefits
to the housing market and consumers of the implementation of The
Housing Act 2004, Part V.
What are HIPs?
8. HIPs bring information gathering to the front
of the home buying process. They comprise required documents and
authorized documents. The required documents are an index, searches
of the Land Registry and Local Authority records, an energy performance
certificate and commonhold and leasehold documents (if applicable).
The authorized documents include a Home Condition Report (HCR),
various environmental search reports and warranties and guarantees.
9. HIPs are provided by the seller or their estate
agent to prospective buyers who will be in a position to make
an informed decision before making an offer on a property. The
information in a HIP will be widely relied upon by buyers' conveyancers,
particularly if the HIP has been provided by a Company that subscribes
to and complies with the HIP code of practice. The HIP therefore
serves to considerably speed up the gathering of information across
the whole process.
The benefits of Home Information Pack Reforms
Direct Benefits
Less Transaction Failure
10. Home Information Packs will reduce the likelihood
of transactions falling through by providing valuable information
to potential buyers prior to them making an offer on a property.
There is a transitional or phased period of implementation that
will achieve this.
11. With effect from the 1 August 2007, HIPs will
contain a Sale Statement, Land Registry Search and an Energy Performance
Certificate, initially for houses with four or more bedrooms and
then spreading to the rest of the market on the phased basis.
In most cases they will also contain Local Authority Searches.
This information is valuable to a prospective purchaser as it
tells them that the vendor has the right to sell them the property,
whether they will have any liability in terms of Drainage &
Sewerage Services, their responsibility in terms of boundary maintenance
and any covenants affecting the property. If there are problems
over title, boundaries or planning permissions, these will be
known before a buyer makes an offer. In many cases sellers will
take steps to rectify any such problems before marketing the property.
HIPs may also contain an HCR and environmental searches, providing
even greater information to potential buyers. These documents
give sellers a clear report on the condition of their property
and whether there are any issues of environmental importance.
If the HCR shows that a property is in need of repair the seller
has the opportunity to undertake the work. Alternatively the seller
can obtain estimates for the required work so that these can be
shown to a buyer. Early evidence suggests that many sellers will
use information in the HCR to rectify problems that may be identified.
If there are environmental issues, these can be addressed at an
early stage or insurance can be procured to cover against any
future losses.
12. By having HIPs up front buyers can make offers
on a fully informed basis and are therefore much less likely to
withdraw from the transaction at a later stage.
13. The other reason that HIPs reduce failure rate
is simply that gathering information at the front of the process
speeds up the conveyancing of properties once an offer has been
accepted. This improvement in underlying speed allows less time
for transactions to fail due to unforeseen circumstances such
as death, ill health, loss of job etc.
Reduced Wasted Costs
14. Under the existing process any number of prospective
purchasers of a property may pay out for the same information.
This may be due to a buoyant housing market and multiple purchasers
are racing to secure a property. Alternatively it may be due to
a sale falling through because a buyer decides to withdraw due
to information obtained about the property after an offer has
been accepted. Potential new buyers will pay again for the same
information. Home Information packs will strip out this wasted
cost and effort. With the seller providing the information to
all and any potential purchasers the cost of duplication and wastage
is eliminated. Potential purchasers can rely on the information
in packs, and where the provider subscribes to the HIP code of
practice they will have the benefit of free redress. Such redress
exists by law for the contents of an HCR where it is included
in a pack.
15 It is worth mentioning at this point the added
cost to Estate Agents of transaction failure. Over 30% of properties
listed do not go through to completion for any number of reasons.
By way of example, spurious sellers, chain breakdown, sudden changes
in sellers or buyers' circumstances all add to the withdrawal
of buyers. The result is much rework leading to wasted effort
and cost for agents due to re-marketing properties, additional
home visits, more market appraisals, and increased telephone calls
etc.
16. A number of Estate Agents that have operated
with HIPs on a voluntary basis over a number of years report that
their fall through rates have reduced to less than 10% and in
some cases are as low as 2 or 3%. Based upon this evidence, where
HIPs are used positively by Estate Agents their costs will reduce
significantly. Further, the reduced time taken for transactions
to complete should improve agents' cash flows. It is not unreasonable
to expect that some of this benefit will be passed on to consumers
through lower commission.
Faster Process Giving Greater Certainty
17. The period of great uncertainty for both home
buyers and sellers in the current process is the period from offer
acceptance, when they know the deal has a chance of going ahead,
to exchange of contracts, when they know the deal will go ahead.
The cause of this great uncertainty is that only at the stage
of offer acceptance does any information gathering start, and
this process can extend over a long period of time. The length
of this period of uncertainty directly increases the chances of
being gazumped and losing money.
18. It is also increasingly common in England and
Wales that exchange of contracts and completion take place on
the same day. Whilst this is not good practice it is directly
linked to the inefficiency of the information gathering process
post offer as it presently operates. It is not uncommon for buyers
to be sitting in removal vans containing all of their belongings
waiting for completion and not knowing for certain that they will
be moving on that day or indeed, into that home.
19. Providing a HIP at the time of viewing greatly
speeds up the information gathering process which not only reduces
the time between offer acceptance and exchange of contracts, but
also eliminating much of the cause of simultaneous exchange and
completion. Additionally the window for gazumping is reduced giving
greater certainty for buyers and sellers alike.
Less Stress for the Consumer
20. Because of the high levels of transaction failure
and the extended period of uncertainty between offer and exchange
of contracts, the current home buying and selling process is one
of the most stressful events that consumers will endure in their
lifetime. Several studies have shown that moving home ranks only
behind ill health, relationship breakdown and bereavement. Incredibly
we take this level of stress for granted in this country whereas
it is not the norm in most European and Western countries.
21. The benefits of HIPs in bringing greater certainty
of transaction success and reducing the time taken to exchange
of contracts will greatly reduce the stress levels associated
with buying and selling homes. When the transparency of e-conveyancing
is introduced (see below) to complement the benefits of HIPs,
stress levels will be reduced even further.
Reduction in the Cost of Buying & Selling
(when combined with e-conveyancing)
22. The introduction of Home Information Packs is
an exercise in process re-engineering. This re-engineering will
bring greater efficiencies to the overall operation of the market
and over time this will serve to reduce the underlying costs of
the home buying and selling process for consumers. These savings
will manifest themselves in a reduction in the cost of information
provision, lower cost of estate agency and conveyancing, and reduced
costs for mortgage lenders (see below). These cost savings are
incremental to the reduction in wasted costs for consumers. A
10% improvement in productivity across the whole process should
translate into a reduction of over £300 for the average transaction.
23. The process re-engineering delivered by HIPs
will be further enhanced by the introduction of e-conveyancing
which brings total transparency to the progress of transactions
both individually and as part of chains. This is a case of the
benefits of the two reforms together being greater than the sum
of the parts.
Indirect Benefits
Reform of Local Authority Searches
24. There are long standing, structural issues in
the provision of local authority searches. The price for an official
search ranges from less than £80 to more than £270 across
over 400+ local authorities. The delivery time varies from instant
online information provision by some authorities to over 40 days
for a paper report by others. Competing with the provision of
official reports, a private sector industry of Personal Search
Companies has developed and grown rapidly. Many of these Companies
offer a national service with a single pricing structure with
centralized support operations. Many local authorities rely on
income from searches and some operate restrictive practices when
providing access to information to the private sector.
25. In 2005 the OFT carried out a study into local
authority practices in terms of providing search information.
A number of recommendations were made, very few of which have
actually been implemented some 2 years later. There has been much
discussion but little action.
26. The introduction of HIPs has served to act as
a catalyst in respect of significantly raising the profile of
the failings associated with local authority searches. As a result
the Housing Minister and her team at Communities and Local Government
are now putting real energy and resource into reforming the market
to deliver the recommendations of the OFT report. Once delivered,
consumers will benefit from an open competitive market bringing
more consistent costs and service levels.
Reform of Leasehold Information Services
27. HIPs will also act as a catalyst to improve the
provision of leasehold management information. Managing Agents
are notoriously inconsistent in the time they take and they amount
they charge for providing essential information on leasehold properties.
This in turn can cause significant delays in transactions and
for many years has been a source of frustration for sellers and
buyers and their conveyancers. Due to this Leasehold transactions
almost invariably take longer to complete, and this in turn can
contribute to transaction failure. They cost of leasehold transactions
can also vary greatly due to the inconsistency of fees charged
by managing agents
28. The government has been consulting with the Association
of Residential Managing Agents (ARMA) to understand how the process
can be made more efficient with a consistent pricing structure
across the industry..
Move to Unconditional Mortgage Offers at Point
of Sale
29. For mortgage lenders the 'Holy Grail' for a number
of years has been the ability to provide customers with an unconditional
mortgage offer at the point of sale. It is increasingly common
in the Mortgage Lending Industry to use Automated Valuation Models
(AVMs) on remortgage business today. Essentially an AVM takes
previous sale figures from the land registry and other data providers
and provides a valuation on a property based on actual transaction
information.
30. What an AVM doesn't take into account when providing
a valuation figure is the condition of a property which is of
much greater importance in purchase transactions .As a result
they are not widely used for mortgages for purchases. In particular
their use in cases with a high loan to value (LTV) and for properties
of unusual construction has been very limited. Already, credit
checks are done on a mortgage applicant at the point of sale and
an 'in principle' mortgage offer provided subject to valuation.
By feeding HCR data into AVM systems at a point in the future,
the accuracy of these systems will increase greatly and would
provide lenders with the ability to provide unconditional mortgage
offers at the point of sale. This would also reduce processing
costs and ultimately the price a consumer pays for a mortgage
application.
Lower Cost of Entry into Market for First Time
Buyers
31. Industry and government both accept that a fluid
influx of first time buyers underpin the house buying market and
bring vital buoyancy to the wider UK economy. Over the past 10
years the average age of a first time buyer has increased from
26 to over 31. This is mainly due to the fact that not enough
homes are being built which has pushed house prices up and made
it more difficult for first time buyers to get on the homeownership
ladder.
32. The first time buyer experience is not a pleasant
one. Having saved up for a number of years for a deposit, they
also need to save up to pay for searches, mortgage valuations
or surveys, and to pay for the legal work in the transaction.
Offers are made on properties in the usual uninformed way and
money is then spent on surveys or mortgage valuations and searches
that can bring to light information that was not known when the
offer was made. Often this means that they can no longer proceed
with that purchase. First Time Buyers are then faced with the
challenge of saving up again for an alternative property to go
through potentially the same process. Further, when the original
property is put back on the market, the subsequent purchaser (potentially
another first time buyer) is faced with paying out again for exactly
the same information - increasing overall cost and providing a
barrier to home ownership.
33. HIPs will bring information gathering to the
front of the process and save redundant costs for those that can
least afford them.
Reduction in Carbon Emissions from Homes
34. Energy Performance Certificates (EPCs) will give
consumers vital information about how much a property will cost
to run in terms of heating, lighting and water services. It will
also give them information on the carbon footprint of the house.
The certificate will provide a series of recommendations that
sellers or buyers can action ranging from the most cost effective
measure with the shortest payback in terms of reduction in bills,
to longer term measures that can be taken to improve the efficiency
of the property.
35. By providing this information at the point that
the property is marketed, the vendor has the opportunity to carry
out some of the cost effective recommendations to make the property
more saleable. Alternatively the purchaser can make the decision
to improve the energy efficiency of their new home using the information
in the EPC. Coupled with the increasing tax incentives on green
measures EPCs will prove a vital tool in the reduction of carbon
emissions from residential properties which presently account
for over 27% of all UK emissions.
Long Term Structural Benefits
Reduction in Cost of Stress to Economy
36. Research carried out in 2007 by Your Move, a
national estate agency, asked a cross section of purchasers who
had just completed the home buying process about their experience.
In particular these purchasers were asked about the stress associated
with the process and if it affected their productivity at their
place of work. Over 40% of respondents said they were less productive
at work when going through the current process. A very conservative
analysis by AHIPP reveals that if a 10% loss of productivity is
experienced by 40% of all people involved in the buying and selling
process, the cost to the economy is over £500 million a year.
HIPs will undoubtedly have the benefit of reducing stress levels
for home buyers and sellers and this will translate into a benefit
to the economy at large of £54 million pounds for every percentage
point of productivity that is saved in the process.
Greater Mobility of Workforce as Process Simplified
& Made Less Stressful
37. We see in England and Wales a reluctance of people
to move home when they move jobs to different towns and cities
because they cannot face the stressful experience of moving home
at the same time as embarking on a new job. This often leads to
people commuting longer distances, typically in cars, to their
new place of work. It is often more attractive to spend up to
2 hours per day on increased travelling time, than go through
this process. Where people travel by car this has a detrimental
affect on the environment through increased carbon emissions,
and congestion on the roads. The impact on public transport where
trains, planes or buses are used is evidenced by the severe overcrowding
of many services today.
38. There is also a detrimental impact on the quality
of family life as the additional time spent travelling is at the
expense of personal time and affects the overall work life balance.
In turn this can impact on relationships and the quality of parenting
for children.
39. There is also little doubt that long travel time
to and from work can be both tiring and stressful and must affect
productivity in the workplace.
40. The introduction of HIPs will make home moving
far less daunting and individuals and families will be more willing
to move when changing jobs. This will coupled reduce carbon emissions,
increase productivity to the workplace and provide for a much
better work/personal time balance and a happier home life bringing
benefits to relationships and children in those relationships.
New HI & DEA Professions Offer New Careers
to a Wide Diversity of People (Sex & Ethnicity)
41. The current demographic of an RICS residential
chartered surveyor is a 57 year old white male. There could well
be a shortage of residential Chartered Surveyors in the coming
years if action is not taken to bring new blood into the profession.
Essentially consumers could be faced with vast increases in the
cost of surveying services, long turnaround times for reports
and valuations. This would slow the housing market yet further
and in particular would increase the cost of entry into the housing
market for First Time Buyers.
42. The new career of Home Inspector introduced by
the Government to carry out HCRs will provide an effective solution
to the impending structural problems in the surveying industry.
The HI career has attracted recent graduates, from a variety of
ethnic backgrounds, with a good mix of males and females. It offers
a realistic, flexible career opportunity for mothers or fathers
returning to work and people looking for a change in career. The
profession also offers career progression and maps out a realistic
career path for a great number of people from a great number of
backgrounds.
In conclusion
43. HIPs have become the focus of political and misinformed
debate over recent months. Consumers' views of HIPs have undoubtedly
been tarnished by the political motivation of some, the vested
interests of others and the irresponsibility of some of the media
on which they rely for making informed judgments. This paper attempts
to set out the many and varied benefits for home buyers and sellers,
the housing market, the economy and communities in general. AHIPP
will do all in its power to make these messages known to the public
so that they will more warmly welcome the introduction of this
important reform.
June 2007
5 For technical reasons, this additional note has not
been printed in this Report. Back
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