Select Committee on Merits of Statutory Instruments Fifth Report

APPENDIX 1: HOME INFORMATION PACK (AMENDMENT) REGULATIONS 2007 (SI 2007/3301) AND ENERGY PERFORMANCE OF BUILDINGS (CERTIFICATES AND INSPECTIONS) (ENGLAND AND WALES) (AMENDMENT NO. 2) REGULATIONS 2007 (SI 2007/3302) - WRITTEN EVIDENCE

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Letter from the Baroness Andrews, Parliamentary Under-Secretary of State, Department for Communities and Local Government

1.  I am writing to you to set out the Government's plans for rolling out HIPs to the rest of the housing market from 14 December 2007.

2.  I would like to reassure the Committee that this decision has been taken in line with the criteria we set out in the implementation plan, published on 11 June. These were:

a) that sufficient home inspectors (HIs) and domestic energy assessors (DEAs) have been certificated or accredited to meet demand;

b) that 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.

3.  As of 15 November 2007, 5,794 home inspectors or domestic energy assessors had been accredited to complete Energy Performance Certificates (EPCs) for inclusion in HIPs, and the regional distribution ensures that there are sufficient numbers in all regions.

4.  We have also commissioned and considered extensive analysis by Europe Economics on the impact of HIPs on the market. We are publishing their independent report which includes modelling on the impact as well as analysis of the first few months of implementation. It finds no evidence of any impact on transactions or prices, although there is a predicted short term impact on new listings as sellers change the timings of their listings. It concludes that the impact on listings is short lived, and the impact on the market is marginal compared to the wider factors.

5.  We have also continued our dialogue with industry since the extension of the scheme to sales of three bedroom properties on 10 September and have been monitoring the initial roll-out closely to ensure HIPs roll-out with the minimum disruption, taking on board early lessons to iron out any minor issues as they occur. In this respect, we are proposing to make the following amendments to the regulations in order to ensure a smooth implementation.

6.  For a temporary period ending on 31 May 2008, the required leasehold documents will only comprise of the lease. The other leasehold documents mentioned in the regulations will be optional during this period. This change recognises the concerns expressed over delays and additional cost in obtaining leasehold documents, particularly those from managing agents and landlords.

7.  We also propose to extend the period during which marketing can start without a HIP until 31 May 2008. Under the current regulations, this period ends on 31 December 2007. We are extending the period to give an adequate period for the final phase of roll out to bed down. We also expect to publish shortly guidance to local authorities dealing with access to search information and a consultation on the charging regime for such information. We have also received strong representations from stakeholders on this who believe that an extension will greatly assist our objective of a smooth implementation.

8.  The roll out of HIPs to all remaining properties will ensure that every consumer is able to benefit from the HIP and EPC. For the first time, every buyer can expect to receive a HIP for the property they wish to buy, no matter what the size. This is particularly good news for first time buyers who currently face high upfront costs in the home buying and selling process. The introduction of HIPs will reduce their entry costs, helping them get a foothold on the property ladder.

9.  On the basis of the evidence available and in meeting the criteria we set out on 11 June, we have taken the decision to announce the roll out of HIPs to the rest of the market today, in a written statement in both Houses, with the changes outlined above and with a commencement date of 14 December. We believe this is the right thing to do and will give sufficient notice to the industry to enable them to prepare for the change in volumes expected.

10.  I hope you will agree that this is good news and a strong sign of a market that is ready and willing to deliver the benefits of Home Information Packs for all home buyers and sellers.

22 November 2007

Second letter from the Baroness Andrews, Parliamentary Under-Secretary of State, Department for Communities and Local Government

1.  I recently wrote to you regarding the announcement to roll out Home Information Packs to all remaining properties marketed from 14 December 2007. I am now writing with further information on a small number of issues I believe are of particular interest to the Committee.

2.  The Committee have asked about stakeholders' views of Home Information Packs following the phased introduction of HIPs from 1 August. There are still a variety of views among stakeholders in relation to the Home Information Pack. However, stakeholders have generally welcomed the removal of uncertainty brought about by the recent announcement to roll out across the market. We will continue to engage with stakeholders as part of our ongoing monitoring work.

3.  More information was also requested in relation to the area trials. These trials have now concluded, however, full conclusions will only be available once transaction completions occur. It is only at this stage that we can measure impact on buyers. Trials ended in April but transaction completion can be several months after. We are unlikely to receive a final report until at least the end of the year.

4.  The Committee have also asked for more information on the consultation on the validity of the EPC. As the Explanatory Memorandum for SI 2007/3301 stated, the consultation on the validity of the EPC will be published shortly.

5.  Finally, you have also asked about the uptake of the Home Condition Report since 1 August. Early monitoring of the housing market since August suggests that there has been a slow uptake of Home Condition Reports to date. However, we will continue to monitor their uptake by the market over the coming months.

4 December 2007

Memorandum by the Association of Home Information Pack Providers

Summary

1.  The phased roll out of Home Information Packs (HIPs) for existing homes will be completed on 14 December 2007 when HIPs become compulsory for homes with two or fewer bedrooms. Independent analysis commissioned by the Government has confirmed that earlier phases of HIPs roll out - initially to larger homes of four and more bedrooms and then to three bedroom homes - have been accomplished successfully and without the detrimental impact on the housing market predicted by the RICS, National Association of Estate Agents and other longstanding opponents of HIPs.

2.  The Committee will appreciate that the introduction of HIPs 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.

3.  This paper commends to the Committee the Home Information Pack (Amendment) Regulations 2007 (SI 2007/3301 and outlines for the benefit of the Committee some of the wider 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.[4] 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.

Home Information Pack (Amendment) Regulations 2007

4.  The Home Information Pack (Amendment) Regulations amend the principal HIP regulations (the Home Information Pack (No 2) Regulations 2007) in essentially two ways:

• they add a new regulation, which will allow required leasehold documents, other than the lease, to be treated as authorised documents for a temporary period until 1 June 2008; and
• they extend the period described in regulation 34 of the principal Regulations (first day marketing during a temporary period), until 1 June 2008. There is a consequential amendment to the date when regulation 16 of the HIP Regulations applies (energy information unobtainable before or at the first point of marketing).

5.  These amendments need to be considered in the wider context of the completion of HIPs roll out to all existing homes as provided by The Housing Act 2004 (Commencement No 10) (England and Wales) Order 2007. Both statutory instruments come into force on 14 December 2007.

6.  The final stage of the roll out follows a highly successful introduction of HIPs for homes of three and more bedrooms, and is supported by a very thorough analysis of the impact of HIPs and EPCs on the housing market. The Government undertook to roll out HIPs to other sized properties having first taken into account the number of assessors and how HIPs are operating in the market. These criteria have been met. There are now more than enough accredited Domestic Energy Assessors, both nationally and regionally, to satisfy demand for Energy Performance Certificates arising from full roll out of HIPs. An independent report by Europe Economics on the impact of HIPs on the market has found no evidence of any impact of earlier phases of HIP roll out on transactions or prices, although there is a predicted short term impact on new listings as sellers change the timings of their listings. The report concluded that the impact on listings is short lived and the impact on the market is marginal compared to the wider factors. In addition, the Government asked Europe Economics and Professor Peter Williams of the National Housing and Planning Advice Unit (NHPAU) to consider whether changing housing market conditions meant they should change the approach to completing the roll out. They concluded that there are strong arguments for rolling out as planned, and further delay would cause greater market difficulties and uncertainties.

7.  These independent findings endorse the positive feedback that AHIPP has received from its membership, including HIP providers, major DEA employers, estate agents and lenders. The findings refute assertions by RICS and the National Association of Estate Agents that HIPs are having a detrimental effect on the housing market.

8.  The extension of HIPs to all properties will particularly benefit first time buyers through a reduction in their upfront costs by not having to pay for a pack, helping them in getting a foot on the housing ladder.

9.  The phased introduction of HIPs is already beginning to bring benefits to consumers with average property search costs starting to fall with the new competition from HIPs (85 local authorities have already reduced their charges by £30 on average), and the availability of energy efficiency advice (with those receiving low green ratings of 'F' and 'G' especially targeted for support and grants to make improvements to cut their costs and carbon emissions).

10.  Government monitoring of the scheme shows the roll out has gone smoothly.

• HIPs are taking on average 7 to 10 days to prepare
• The majority of property, and drainage and water searches, are being delivered promptly within 5 days
• EPCs are being prepared on average within 2 to 4 days
• The average cost of a pack is £300 to £350 - costs which apart from the new information included in the EPC are already part of the home buying and selling process.

11.  AHIPP acknowledges that care should continue to be taken to ensure that HIPs are introduced smoothly into the market and to avoid risks of consumer detriment. Temporary transitional arrangements provide an effective means of achieving this.

12.  The effect of the amendment regarding leasehold sales is that for a temporary period up to 1 June 2008 most leasehold documents can be included in the HIP where they are available, rather than requiring them to be made available up front. This transitional measure recognises concerns expressed over delays and additional cost in obtaining leasehold documents, particularly those from managing agents and landlords. It also recognises that the final phase of HIP introduction will involve a higher proportion of leasehold properties. AHIPP is in the process of obtaining information from its members about the extent of the problems encountered in obtaining leasehold information for HIPs. Feedback to date shows that all respondents are experiencing problems with slow responses and excessive charging and that these problems, along with others such as incorrect documentation and failure to respond to information requests, are arising in in excess of 50% of cases.

13.  It should be stressed that these problems are not the result of the introduction of HIPs. They are longstanding problems that have been prevalent for some years. The introduction of HIPs has put the spotlight on the inefficiencies and consumer detriment of this aspect of the leasehold transaction process and increased the urgency of effective reform. This temporary measure will provide a short breathing space for an action plan to be drawn up to address the problem. As noted later in this paper, AHIPP endorses the approach proposed in a Private Members Bill introduced in the House of Lords last session by Lord Redesdale. This sought to require landlords and managing agents to lodge leasehold information with the Land Registry. This would extend to leasehold properties the information lodgement arrangements that apply to commonhold properties. It would bring about a major improvement in the efficiency of leasehold transactions by making key information available quickly and easily on line.

14.  Leasehold information is important to the decisions that prospective buyers of flats need to take. It is important, therefore, that this information is made available upfront in the HIP and thereby enable a prospective buyer to make an informed offer. Otherwise there is the risk that when the information becomes available later in the process it could cause the buyer to withdraw, with a knock on effect to other transaction forming part of the chain. The Government's expectation is that in the majority of cases leasehold documents will readily and easily be available for inclusion in HIPs as authorised documents. AHIPP does not share this confidence. We believe that this information has to be a mandatory component of the HIP in order to ensure that it is available when it is most needed - up front before negotiations commence and terms are agreed. It is important therefore that the Government reverse the amendment at the earliest opportunity.

15.  Similarly, and for the same reason, the amendment to extend the exemption on first day marketing should be in force only until final phase of HIP roll out has had an opportunity to bed down.

16.  In summary, AHIPP recognises and commends to the Committee the benefits of the amendment regulations in assisting the objective of a smooth implementation of HIPs. However, these transitional provisions should not be extended beyond the period provided in the amendments. Indeed, the Government should keep under review the scope for ending the transitional arrangements, including the exemption on first day marketing, earlier than 1 June 2008.

December 2007

Memorandum by the Council of Mortgage Lenders

Introduction

1.  The CML is the representative trade body for the residential mortgage lending industry. Its 163 members currently lend on over 98% of residential mortgages in the UK mortgage market.

Benefits to consumers

2.  Coinciding with the announcement, the government published an independent report containing modelling of the impact of Home Information Packs (HIPs), as well as analysis of the first few months of implementation. Monitoring has highlighted the need for further improvements to benefit consumers. In particular, there were concerns that for some consumers leasehold documents were proving difficult to obtain and that, in some cases, excessive charges were being requested.

3.  The government has claimed that overall HIPs were delivering benefits for first-time buyers, with a decline in upfront costs. It said that property search costs were beginning to fall as a result of greater competition between suppliers following the introduction of HIPs. Some 85 local authorities had reduced their charges by an average of £30 and we know some local authorities are able to process search applications efficiently. However, we understand that issues with personal searches have not been completely resolved. Implementation of the OFT's recommendations is essential, to bring an end to the restrictions imposed by local authorities on access to data by private search firms.

4.  There is already evidence that some local authorities are finding it hard to cope with the demand for both official and personal searches. This could lead to a post code lottery in HIPs delivery unless the Government takes swift action to address this.

Reducing carbon emissions

5.  While the CML is supportive of the concept of Energy Performance Certificates (EPC), providing an EPC with a home information pack does not guarantee householders will actually take energy-saving measures. While EPCs are a good first step, unless householders act on the information they contain, they will not improve energy efficiency and reduce carbon emissions as the government suggests. We welcome the establishment of the Green Homes Service that will offer a discount or free help with energy efficiency measures to those with the lowest energy ratings. So far, around one-fifth of homes have been given an F or G rating, the lowest available, but we do not know whether any improvements have been made to these homes. It therefore remains important to get feedback from the HIP roll-out as to what action either sellers or buyers take as a result of receiving an EPC.

6.  We remain of the view that EPCs should be much more widely available to home owners at all points during their home ownership. We believe householders are more likely to take action to improve their properties while they are living in the property and will be able to benefit from the savings than at the point of sale when there are other things that they would prefer to spend their money on.

7.  In addition, delivering EPCs through HIPs means it will take more than 13 years before all home owners have received one. Yet delivering EPCs is the government's main rationale for pressing on with HIPs. We believe the government should reflect whether EPCs could be delivered more quickly and more universally in a different way. We believe that a possible solution would be for HIPs providers to market a de-coupled EPC product that would enable home owners to access both the current rating of their dwelling and the cost of effective improvements report that could guide their investment at any time throughout their ownership of the property. Perhaps the Green Homes Service could be extended to any home owner who has an EPC which shows that the property has a low rating.

Impact on the market

8.  An expected decline in property sales next year will make it virtually impossible to assess the effect on the housing market of the government's decision to roll out HIPs to all properties later this month. Packs are already compulsory for the sale of all homes of three or more bedrooms, and the government now wants to roll them out to the whole market from 14 December.

9.  Announcing the decision, the government said that so far there was no evidence that HIPs had made any difference to transactions or prices, although an impact on new listings was predicted. It said, however, that this effect would be short-lived and that any impact on the market would be marginal compared to wider factors. That view has been disputed by the Royal Institution of Chartered Surveyor and the National Association of Estate Agents, with both arguing that a full roll-out of HIPs would result in a decline in the number of transactions.

10.  Any restriction in the supply of smaller properties because of HIPs could worsen affordability for first-time buyers. We believe that sales of less expensive (one- and two-bedroom) homes are more likely to be affected by cost of packs. That is because the cost, estimated by the government at £300 to £350, is higher relative to the asking price of the property and may therefore deter sellers if they think that marketing their property may not lead to a sale.

Conclusion

11.  In choosing December, the government has opted for a quiet time to roll packs out to all properties. We have already predicted a decline in the number of transactions next year because of market conditions, and rolling out HIPs when property sales are falling means that we will never know their true impact.

3 December 2007

Memorandum by the Council of Property Search Organisations

1.  The introduction of Home Information Packs (HIPs) will provide consumers with information (including searches), at the outset of a transaction when it can most usefully inform their home buying decisions. Both the principle behind the policy and the detail of the legislation has been scrutinised and debated at some length, both publicly and within the Houses of Parliament. We do not believe there should be further delay to the full implementation of HIPs.

2.  The Council of Property Search Organisations (CoPSO) is the major trade body representing those private companies involved in providing, for example, local searches, environmental reports and drainage and water searches to individual purchasers and their agents. Its members are commercially affected by the introduction of HIPs and have had to make business investment decisions to respond to the proposed change in legislation. They are therefore concerned to ensure that there is certainty in this area and the full roll-out of HIPs will provide this.

Competitive search market

3.  A highly competitive search market backed by quality standards will ensure that consumers benefit both in terms of price and service delivery. The introduction of HIPs will promote further competition within this sector and should be encouraged. Government must ensure that public sector bodies (and specifically local authorities) do not take advantage of their position as gatekeepers of search data to restrict progress and reform.

First day marketing

4.  The extension of the First Day Marketing period is essential to allow additional time for those providing information in HIPs, to do so efficiently and without delay. Personal search firms provide local searches using data which is publicly available from local authorities. However many councils impose severe restrictions on access to this information by search organisations, which in turn restricts consumer choice. Government must address this issue immediately by fully implementing the Office of Fair Trading's 2005 recommendations, which require local authorities to provide full access to data on terms which do not favour their own search services over those provided by the private sector. These reforms are long overdue and are essential to avoid a post code lottery on when searches can be delivered in HIPs.

Provision of better information

5.  The HIPs Regulations introduce new and improved standards for searches and will lead to the delivery of more comprehensive information for home buyers and their advisers. The search industry has also introduced additional standards via the Search Code and compliance with these is independently monitored by the Property Codes Compliance Board. Consumers will directly benefit from these reforms.

6.  Searches in HIPs can be relied on by buyers, potential buyers, sellers and their lenders and therefore there should be no need for additional searches to be commissioned by buyers, resulting in increased costs.

Further reform of the home buying process

7.  Any major reform will always attract a degree of opposition from vested interest groups affected by their introduction, and HIPs are no exception. Yet they have also attracted a great deal of support - something which has not been fully reflected in recent debate. After a ten year development period, HIPs should be given the opportunity to demonstrate their worth and act as a catalyst for further reform of the home buying process.

December 2007

Memorandum by Michael Garson

1.  Following the announcement made on 22 May 2007 HIPs have been introduced by phases and three commencement orders have triggered the application of the regulations to 4 bedroom, three bedroom and homes with less than three bedrooms from 1 August, 10 September and 14 December respectively. The final phase will be to include homes under construction (which are otherwise excluded) from April 2008.

2.  It is submitted that the instruments fail to meet the standard necessary for all of the reasons [which constitute the grounds on which the Committee may bring a statutory instrument to the special attention of the House].

Political importance

3.  By a number of steps taken at various stages since the beginning of January 2005 the government has stepped back from implementation of the HIP as conceived. It can no longer serve its original purpose as the objective has been changed. Given the significant economic consequences and social impact of those changes the project should be suspended pending further investigation.

4.  The withdrawal of the Home Condition Report considerably weakened the potential for the pack to change the culture of the buying and selling process. Other changes have reduced the scope of disclosure at the marketing stage and to be contained within the required elements of the pack.

5.  With the announcement of the amending instruments on 22 November the government published an economic report that was commissioned not to analyse the results of transactions undertaken during the Dry Run, but to assess the implications of phasing the introduction by three stages. The report was delivered in July but updated at 20 November 2007 to consider the impact on markets of the sub prime crisis and credit squeeze. This is an important change to the circumstances in which the HIP regime must now operate.

6.  Insufficient time has been given for this report to be fully digested and explored by affected parties. It does not in any event provide the level of endorsement for the legislation that would justify the adverse consequences of the legislation.

7.  The report into transactions has deduced from a variety of factors that the impact of HIPS on the supply of property to the housing market has not been and is not likely to be material but is hard to predict. This by no means rules out the possibility of severe failure in the operation of a vibrant two way market.

8.  It is accepted that other factors than HIPs may have a greater impact, and that the credit squeeze is one such factor. There is another threat yet to materialise and this is the impact of the HIP in a falling market where both the seller (strapped for cash) and lenders (needing to foreclose) require a pack and there is tension or conflict over the type of pack required and its cost with the potential to affect the price achieved and timing of the sale. This has yet to be considered.

9.  The report does not take into account of the views of consumers or the majority practitioner views of those involved in the market. It does not take account of the cumulative effects of a delay in the decision of sellers to come to the market. The availability of stock for buyers will be reduced and this itself will inhibit the introduction of that potential buyers property into the supply of stock in the market.

10.  The report may well under-estimate the effect of HIPs in a falling market (volumes rather than price) and the wider economic impact of a slowdown in terms of consumers spending has not been fully taken into account.

Legally important

11.  Controversially the pack went live with continuing requirements for local and drainage searches and leasehold information. These requirements are problematic, as was widely predicted by Law Society.

12.  In the case of leaseholds, the amendment to the No 2 regulations now proposed represent yet a further dilution. The disclosure now to be required amounts to no more than production of the lease. This in many cases will be a publicly available document where it is registered at the land registry. It can be inspected by the public without legislation and without the cumbersome HIP process without need for the expense and disruption associated with HIPs.

13.  Local search reports remain a problem despite the improvement that might arguably be expected at some point in the future from the reforming provisions of schedules 6 7 and 8 of the No 2 regulations. The reason is that despite government efforts to encourage competition between search providers there remain deep-seated problems which remain unresolved. The government's desire to reform the structure of the market for searches has been delayed and this has spilled over to affect the way in which the pack provisions operate.

14.  In most cases the production of a search within the HIP does not avoid the need for a second search to be carried out on behalf of the buyer. The buyer assumes risk under the doctrine of caveat emptor and there is nothing in the legislation to reduce or lighten that burden. The buyer's advisers must take the risk into account on behalf of the buyer and on behalf of lenders. It is quite unjustifiable for the government to push for acceptance of a premature search that may be incomplete, out of date and insufficient for the needs of a buyer. To do this misleads buyers and actually drives up the cost of the transaction as searches have to be repeated on behalf of the buyer and lender at a later stage.

15.  Searches should be removed from the pack and not reinstated until such time as markets have been reformed and the issues well known to government have been resolved.

16.  Government concessions have also been focused around relaxation of the timetable for preparation of the pack. On the one hand this has allayed fears of estate agents responding to sellers' demands to market property at the earliest possible moment, and on the other to acknowledge that certain contents of the pack take time to obtain and assemble.

17.  In the event, earlier concerns in May concerning the shortage of DEA's and consequent delays in obtaining an EPC have not materialised. However delays are experienced in relation to searches (local and water and drainage) and leasehold matters. In many cases transactions proceed to exchange without a pack being complete because of delays or because unregulated providers put processing work on hold so as to avoid expense.

Failing to achieve objectives

18.  It is time to take stock of the pack as now implemented and assess its impact with the objectives of the legislation.

19.  Reducing cost - The new procedure increases overall costs. It involves the production of information that is then duplicated at a later stage. There is no evidence that packs are used or can be relied upon by buyers or their advisers. The development of a new industry of pack providers preparing the pack as a 'product' separate from conveyancing has added inefficiency and duplication of effort and expense with no benefit to seller or buyer or lender.

20.  To simplify - it has added process and complexity and introduced another new layer of unregulated providers who compete through the use of referral fees to buyer business - much of which goes on hidden from the consumer.

21.  On the basis that caveat emptor is unaffected by the legislation the new process does not increase the speed of the transaction once terms have been agreed. In any event market forces will determine the ultimate speed of transactions. Even if all procedural obstacles within the processes are entirely and efficiently removed blocking and delay mechanisms are likely to exist as seller and buyers look for a 'cooling off' period.

22.  Arguably the total time taken, from the date of the seller's decision to move to the 'moving in' day for the buyer, has been increased on account of consumer concerns particularly about the inspection for the EPC where the seller wants the result known before marketing starts

23.  Benefit to first time buyers - There is no evidence that buyers find the HIP of interest and even if they do they will not find that it addresses areas of serious concern to the transaction.

24.  Buyers do not benefit as there has been a shortage of property available to buy. First time sellers are deterred from marketing property for sale by the costs of buying and concerns about the pack. This reduces the supply of stock for buyers and may show that the view expressed in the Europe Economic report is mistaken.

25.  As introduced packs are of no help to first time buyers as they do not usually purchase 3 and 4 bedroom homes. Further many first time purchases take place in central urban areas with a high proportion of leasehold property where the pack is no longer to contain any more than a copy of the lease. This is in itself a technical document upon which buyers generally need expert advice and without the information no longer to be 'required' it is an incomplete document upon which to make a secure decision to buy.

26.  Transparency - It may be true that consumers, if better informed, would be better able to manage their transactions to suit convenience. This has not been achieved as the government's approach has been confusing and misinformation is rife. With so many variables in the new system consumers can have no confidence in the elements of knowledge they acquire. The development of new companies wishing to sell additional services whilst providing packs has lead to further fragmentation of the process.

27.  The market will continue to offer for sale those homes within each category as defined by the commencement orders, that have been on the market up to the date of each commencement order. There is no date by which such homes need to have a pack and this adds to inconsistencies in the market.

28.  The relaxation of the provisions requiring the updating of packs where property is 'taken off' the market and then put back on, makes the position uneven and confusing to the public at large and to their advisers. Bearing in mind that the age of the pack is a technical matter and involves responsible assessments it is worth noting that most front line estate agent negotiators have no formal qualification. It is likely that many complaints will arise as misinformation fills the marketplace and dissatisfaction will grow rather than reduce.

29.  Environmental - Through the HCR it was hoped that problems encountered by buyers could be reduced in relation to a defective property. This has not been pursued because of difficulties in a number of areas both technical and associated with delivery. No improvement has been achieved and there are shortcomings to the EPC in relation to the cost of improvements and inconsistencies in the form of report as it impacts on different types of construction.

30.  Avoidance and Abuse - The provisions do not set a standard that can be easily monitored or checked. Hence the detailed and complex provisions of Regulations 33, 34 may be, and are being sidestepped. Where services are provided by unregulated service providers this has no consequences unless TSO's are able to enforce and willing to do so.

31.  Where regulated providers are involved then personal conduct is an ethical issue and self regulation sets an expectation and standards for compliance. This involves cost that may not always be recovered especially where services are offered in competition with others who do not share the same system of regulation.

32.  Low standards of advice from non regulated pack providers is not working in the public interest and enforcement of standards is virtually is non existent.

Comments upon earlier reports

33.  The phased implementation was no part of the original HIP regulations but has come about through a series of commencement orders under the Housing Act 2004. The commencement orders were laid at short notice and were not subject to parliamentary proceedings or to scrutiny. The policy was extended without further public debate consideration other than debate upon an opposition motion (HC) on 10 October 2007 without the benefit of transactional information. Although it appears that an early version of the economic report had by then been produced the government did not publish the report during the debate.

34.  At the conclusion of the litigation with the RICS (see Tomlin order) the government agreed that it would carry out further full twelve week consultation on implementing EPCs, starting in the summer. It has so far failed to do so though summer has given way to foggy November nights.

35.  The Committee previously reported that the Government had not been able to convince the principal stakeholders in the housing market that the proposals were sensible or worthwhile, or likely to be effective for their declared purposes; and they needed to do more if the market was to respond positively to this intervention. Despite regular meetings there is little evidence that government is truly listening.

36.  On 18 July 2007 the HL by a majority voted against the HIP regulations on the basis that they were flawed and brought no value to the existing process leaving aside the EPC that is introduced through a separate instrument.

37.  The government in its response on 20 July stated:

The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Andrews):

"Following the motion to revoke the Home Information Pack (No. 2) Regulations 2007, the Government are placing their response on record.

A number of debates have taken place over the past year about home information packs (HIPs). The Merits Committee of the House has reported twice on HIPs regulations. Throughout the parliamentary process, the Government have listened carefully to the arguments put forward and have adapted our plans for the introduction of HIPs in response to many of the comments made. We have also engaged in long and constructive dialogue with key stakeholders from the industry.

In response to the arguments put forward by Baroness Hanham, Baroness Scott, and Earl Caithness, the Government have made it clear that we remain committed to HIPs, linked with energy performance certificates (EPCs), as a first step in reforming and improving the home-buying process, which is currently wasteful, stressful and opaque. We believe that the process needs to be more transparent and predictable, particularly for first-time buyers and that all consumers need to be able to rely on having key information before they commit to home purchase rather than later in the process. These arguments were supported in debate by Lord Elystan-Morgan, Lord Graham of Edmonton and Lord Redesdale, who also drew attention to the importance of energy performance certificates.

We also believe that the urgency of climate change and the need for consumers to have more information about reducing energy use and energy bills means that introducing EPCs as part of the HIP will achieve this swiftly and reliably.

In recent months and since the regulations were withdrawn on 22 May, everything has been done to ensure a smooth introduction of HIPs and EPCs on 1 August. Our implementation plans, announced on 11 June, have been followed through. There are enough inspectors; the infrastructure is ready; the industry is prepared; and consumers are anticipating the change. There is no reason to delay any further. We will therefore introduce HIPs for the sale of homes with four or more bedrooms on 1 August, and we will roll them out for the remainder of the market as announced. We are confident that they will act as a catalyst for reform of the wider home buying and selling process and make a considerable contribution to cutting carbon emissions. We will, of course, continue to work with stakeholders to make further progress on those agendas."

38.  Climate change is thus a new policy objective although outside the scope of the Housing Act legislation. The energy-saving objectives can be achieved more effectively by other means than this legislation and should follow full consultation about the EPC and its effectiveness both for implementing EU directives and generally.

39.  In any earlier report the committee said:

"On EPCs, we said that the Government accepted that linking EPCs to HIPs as proposed would mean that many EPCs have to be updated more often than the frequency of 10 years specified in the European Directive which was being implemented. We added that the Government had not presented a rationale for this approach which refuted the criticisms voiced; and so we questioned whether the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 appropriately implemented the Directive."

40.  The government have not been able to justify the benefit of the EPC restricted to properties marketed for sale rather than across the whole property stock and there is no evidence that the EPC will itself address policy objectives apart from the EU directive which itself could be satisfied by an EPC at point completion of a sale every ten years.

Reform process

41.  The Committee has stated:

"21. In our 18th Report, we also concluded that the Government had not been able to convince the principal stakeholders in the housing market that their proposals were sensible or worthwhile, or were likely to be effective for their declared purposes; and that they needed to do more if the market were to respond positively to this intervention.

22. It may be that there is growing evidence from the pilot areas that consumers themselves are responding positively to HIPs; if so, the Department need to present a proper analysis of such evidence. We welcome the commitment given in the EM that, in parallel with the consultation process on EPCs, the Department will continue its informal and formal consultations with stakeholders, and we hope that this process will generate greater consensus on how best to take the policy forward. Until there is better evidence of such a consensus, however, we must continue to be sceptical about the prospects for a positive market response to the HIP policy.

24. We trust that the ongoing process of consultation with stakeholders will also influence decisions on when further phases will be initiated. In particular, however, we urge the Government to report to Parliament on experience gained in each phase and to allow further opportunities for debate before the HIP duties are extended to other properties."

42.  There is no meaningful evidence that takes any of these matters further. On the contrary see below:

43.  The law is being brought into disrepute as there is widespread avoidance because of complexity and lack of TSO action. Also the vagueness of legislation has lead to a variety of avoidance parties. For example no answer was given to the question below as to what defines a bedroom. See below

44.  Lord Bradley asked Her Majesty's Government:

What is the definition of (a) a bedroom, and (b) a study in a residential property in relation to the home information pack.[HL4506]

The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Andrews): From 1 August, owners of properties with four or more bedrooms will be required to compile a home information pack if they market their property for sale. A four-bedroom dwelling is one that is marketed and sold as having four bedrooms.

Energy performance certificates and home information packs will be phased in, starting with four-bedroom homes and larger properties and rolling out as quickly as possible to three-bedroom properties once sufficient energy inspectors are in place, nationally and regionally to meet demand, taking into account market conditions.

45.  It is irresponsible of government to deliberately use legislation as a catalyst for change when to do this means that markets are destabilised. There is still no clear path by which government can be confident that it can achieve policy objectives. It is however clear they appear to misunderstand the underlying processes involved in marketing property, negotiations of contracts, raising of finance, conveying title, protecting the public from identity fraud and exposure to money laundering.

46.  The legislation impacts unfairly on owners of different types of property in different price scales across the country it therefore distorts the market.

47.  The impact of failure upon taxation revenues has not been in relation to VAT and SDLT.

Summary

48.  The government case for efficiencies and transaction cost neutrality are not borne out. The duplication of search costs alone involves additional cost burden. As pack providers have to charge Vat on packs and EPC's and the EPC on its own may necessitate further advice that too will involve additional expense for both sellers and buyers.

49.  We submit that there are grounds for the committee to conclude that:

The Home Information Pack (No 2 Amendment) Regulations 2007 should be drawn to the special attention of the House on the ground that they may imperfectly achieve their policy objectives.

The Energy Performance of Buildings (Certificates and Inspections) (England and Wales) (No 2 Amendment) Regulations 2007 should be drawn to the special attention of the House on the ground that they give rise to issues of public policy likely to be of interest to the House.

3 December 2007

Memorandum by the Law Society

Background

1.  The Home Information Pack that emerged from the Housing Act 2004 contains only very limited documentation and although provision was included to permit a legal opinion on the property, it is clear for a number of reasons that very few HIP providers are able or willing to include such an opinion. The result is that HIPs are at present limited to the marketing of a property (i.e. the statutory requirement that has to be complied with in order to advertise a property for sale) and are not a significant or indeed almost any part of the formal conveyancing process which for the time being is continuing much as before. In order to become part of the actual conveyancing process, a HIP would have to be far more comprehensive which would mean it took longer to produce and would be much more expensive. At the present time HIPs add a tier of cost to the house buying process with no benefits to the consumer.

History

2.  The Law Society was disappointed that the government failed to conduct a thorough review of the first two phases of Home Information Packs (HIPs) and Energy Performance Certificates (EPCs) before extending the scheme to all properties, particularly leasehold. We argued that it would be highly irresponsible to move to the final phase until there had been time for a more meaningful evaluation of the introduction of HIPs. The Law Society argued that a proper evaluation to accurately monitor the earlier implementation phases was essential before extending the scheme.

3.  It is too early to be sure how the introduction of HIPs has worked in practice. It is impossible for the government to have taken into account the operation of HIPs in the market following their introduction during the quiet August market, particularly given the fact that the first phase of the scheme only applied to 17% of the total market.

4.  The government should have waited to ensure that the first tranche of HIPs had operated successfully before considering rolling it out to all properties, rather than rushing ahead prematurely. There have already been enough uncertainties over the arrangements for the introduction of HIPs. It was in everyone's interest to ensure that those problems were not repeated in the subsequent roll out.

5.  It is our view that the government has bowed to pressure from those newcomers into the market who have a financial interest in HIPs. By contrast there was no meaningful discussion with the other established stakeholders such as RICS, NAEA, and the Law Society. Nevertheless, we urged solicitors to prepare fully for the extended scope of HIPs to all properties.

Home Information Pack (Amendment) Regulations 2007 (SI 2007/3301)

6.  Regulation 2 adds a new regulation 10A to the principal Regulations, the effect of which is to treat required leasehold documents, other than the lease, as authorised documents for a temporary period until 1 June 2008. The disclosure required will be no more than the production of the lease and much valuable information will not therefore be available to the buyer.

First time buyers

7.  HIPs will be required for one and two bedroomed homes from 14 December 2007. There is a high proportion of leasehold properties among such homes and it is reported that leasehold documents are proving hard to obtain quickly. As many first time purchases take place in urban areas at the centre of cities and towns, leasehold property forms a high proportion of such sales and the HIP will no longer contain anything more than a copy of the lease. The Law Society's view is that leaseholds are often complicated arrangements on which buyers need expert advice and the HIP will be an incomplete document on which to make a decision to purchase.

8.  The Explanatory Memorandum (EM) to SI 2007/3301 refers back to the EM to the Home Information Pack (No. 2) Regulations 2007 (SI 2007/1667) for a detailed statement of the policy objectives of HIPs. That earlier EM (paragraph 7.3) contains the following:

"The specific objectives of home information packs are:

to provide consumers with better information at the right time in order to improve the speed and certainty of transactions and reduce wasted costs; and to reduce the carbon emissions that come from homes, which currently account for 27% of UK emissions."

9.  We would suggest that the limited level of documentation available in the HIP, it is unlikely that this objective will be achieved.

10.  Service charges in particular are a very important issue for consumers in making a decision to purchase a flat, although they are difficult for consumers to understand without some detailed explanation. A flat with a relatively high monthly service charge may indicate a well run building possibly with a valuable reserve fund for major works. Conversely a flat with a nominal or non-existent charge may look attractive superficially to a consumer but may indicate a poorly run building. They may receive a request for many thousands of pounds in one year if there is no established fund for major works.

First day marketing

11.  Regulation 3(1) extends the period during which properties can be put on the market when the HIP has been commissioned, but not completed to 1 June 2008. We believe that this is a sensible move insofar as it will allow estate agents to respond to sellers' requirements to market property at the earliest possible moment, and that it acknowledges that certain contents of the pack take time to obtain and assemble.

December 2007

Memorandum by the National Association of Estate Agents

1.  The National Association of Estate Agents was, needless to say, very disappointed that the Minister ignored our and other stakeholders' calls for the further implementation of HIPs to be halted.

2.  In our opinion there were clear indications that the introduction of HIPs had affected the supply of 3 and 4 bedroomed properties.

NAEA Survey

3.  In a recent survey conducted in November, members were asked to compare the market in October 2007 to the same time last year. The Association received a record response with over 1000 replies.

4.  The results showed that 83% of agents found that requests for market appraisals had dropped with 9% of respondents finding a reduction of more than 50%.

5.  When asked about the change in the number of instructions for 3 or more bedroom properties, a staggering 76% stated that they had seen decreases in excess of 10% of which 46% had seen drops in excess of 30%. This compared with a much smaller reduction for 1 and 2 bedroom properties with 37% of respondents finding a drop of more than 10%.

6.  Whilst we clearly accept that a number of financial and economic factors are affecting the market, these figures clearly show that there is an anomaly between instructions on properties where a HIP is required and where one is not.

7.  When members were asked about available stock levels year on year, 76% of respondents stated that in October their stock was either the same or less. Normally, at this stage of the market cycle, with sales slowing and normally a traditional autumn bulge in instructions, it would be expected that stock levels would be significantly higher and the fact that only 24% stated this was the case should worry Government as it is just not usual.

8.  There were many examples where potential sellers had decided against putting their property up for sale because of the risk of wasting £300 or more if they decided not to sell.

9.  We have also continued to point out to Government that, in many areas there are major delays in obtaining local searches, drainage searches and management information.

10.  In addition our survey indicated that on average the HIP was taking 2 or more weeks to complete which is at odds with the Governments own figures.

11.  It is also clear that sellers, potential buyers and conveyancers are showing little interest in the completed HIP.

12.  Regardless of the above and other surveys by the likes of the RICS and despite the Oxford Economic Forecasting Report of June 2006 which clearly indicated that HIPs would have a major impact on the market, CLG have pushed ahead relying on an updated report by Dr Peter Williams.

13.  The main conclusion of this report upon which the Minister took the decision to roll out HIPs fully, is that there was no evidence to show that HIPs were affecting transactions or prices and that the market slow-up was due to the economic and financial situation. Whilst accepting that HIPs must have had some effect it was felt that it was really too early to be certain. This begs the question 'how can an equitable decision to proceed be made?'

14.  It is disappointing that Dr Williams did not talk to the Stakeholders or take into account or discuss our recent members' survey because it is my opinion that his report contains a number of flaws.

15.  He underestimates the number of potential sellers "testing the water" and is wrong to consider them timewasters as we all know that this is clearly not the case.

16.  It is probably true that transactions and prices have not been affected. It is far too early for this to happen and this will occur as a result of a reduction in instructions. However, no attempt was made to check listings of 3+ bed properties against smaller ones which would in our opinion have shown a clear difference. Neither do I believe that a correct analysis of stock levels has taken place. Had we had a discussion regarding our own significant survey then he might have come to different conclusions.

17.  My own conclusion is that the Government has proceeded on the basis of a report that did not fully look into all the market conditions and in any case accepts it is too early to come to many firm conclusions.

18.  The Association is pleased that the Minister accepted some of the problems outlined above by extending "first day marketing" and, on a temporary basis, requiring only a lease to be included in the pack rather than all the leasehold information.

19.  The recognition of these problems, which are unlikely to find a quick solution, does of course mean that the resultant HIP is even less fit for purpose and does not meet the original reasons for introduction.

20.  We continue to maintain that the Energy Performance Certificate should have been dealt with outside HIPs. Government should have paid attention to the Stakeholders' call for a discussion on better ways of improving the process.

21.  It is interesting that Scotland will shortly be laying regulations for a very simple version of HIPs. This comprises only two documents including a Sellers Property Questionnaire that should provide the type of answers that will be of real use to potential buyers. This questionnaire has been produced and piloted by the industry and has support.

22.  We would ask the Committee to seriously consider whether HIPs are fit for purpose.

December 2007

Memorandum by the Royal Institution of Chartered Surveyors

1.  RICS has noted that the legislation has been developed in a piecemeal and tactical manner as problems have arisen. It is now much diluted from its starting point while a number of uncertainties and loopholes remain which the unregulated sector may exploit during the implementation phase. This in turn could create problems for enforcement authorities, agents and buyers and vendors thus negating the very purpose of HIPs.

2.  RICS remains concerned also that CLG has failed to provide the evidence that, it claims, demonstrates the benefits of HIPs to the public prior to the full roll out planned for 14 December.

3.  RICS does not believe that the potential benefits of the Energy Performance Certificates can be effectively delivered through Home Information Packs and calls for a de-coupling of the two. We also await the consultation document on EPCs that was promised in May and led to our staying of judicial review

Key Concerns from RICS:

PIECEMEAL, REACTIVE APPROACH TO LEGISLATING

4.  Whilst we welcome the decision to use the latest regulations to defer certain measures on first day marketing and leasehold information, we remain concerned that there is little or no evidence in the accompanying documentation that provides comfort as to the Department's intention or ability to resolve problems in these areas by 1 June 2008. We believe that the problems should have been resolved before rather than after full implementation It seems that CLG has responded to the newly created HIP industry but has lost sight of the bigger picture, thereby leaving a set of regulations full of holes made by their own short term interim fixes. This is not the way to introduce legislation.

EVIDENCE

5.  There continues to be a lack of timely, democratic consultation with industry on the HIP proposals and, with HIPs now in place, a complete failure to analyse publicly any market experience of HIPs. Significant, independent trials have not been carried out to study the impact of HIPs and the work that has been done has not been published. RICS continues to ask Government to share MORI data that has been gathered concerning the impact of HIPs. Failure to publish it suggests that its conclusions may be less than welcome to CLG although it has been cited several times in the Regulatory Impact Assessment accompanying these regulations. We believe that the industry and the public should be allowed to draw their own conclusions

6.  The only research that CLG has published, conducted by the European Economics, is fundamentally flawed and presents a mistaken and inaccurate picture of speculative sellers, a key element of a buoyant market. In addition it does not identify any positive aspects of the policy. Currently the Department appears to be relying on anecdotal material which differs widely from the industry's experience of matters, such as how long it takes to produce a HIP and consumer attitudes to HIPs, to justify the roll out of HIPs to one and two bedroom property. RICS is concerned that HIPs are being rolled out without a credible research/impact basis.

TIMESCALES

7.  The regulations were laid on 23 November and implementation is due to take place on 14 December. This gives the industry very little time to prepare for the roll out.

FIRST DAY MARKETING

8.  The industry's collective experience of how long it takes to produce a HIP is very different from CLG's view. While CLG claims that HIPs are being produced in 7 to 10 working days. RICS members maintain that it is taking over 2 weeks to produce a HIP in the majority of cases. We believe that the Department should provide some firm evidence to support its claims rather than rely on unsubstantiated claims by HIP supporters. In some of the worst cases, it is taking much longer to produce a HIP because of the weeks taken to obtain a water and drainage search. It remains to be seen whether such problems will be resolved and, unless and until they are, we believe it is essential to retain first day marketing which provides vendors and their agents with the ability to get properties on to the market when they choose.

LEASEHOLD INFORMATION

9.  The requirements to produce leasehold information have now been reduced to the bare minimum as the government has at last acknowledged fundamental problems in the time and cost taken to produce this information. We are extremely concerned that, in the Regulatory Impact Assessment accompanying these Regulations, there is no assurance as to the government's intention or ability to resolve these problems within the six months provided by the Regulations. It merely says it will analyse the problem -which RICS first raised with the government eight years ago. Failure to resolve this issue will have a detrimental effect on sellers and buyers of leasehold property - which tends to be smaller property of interest to first time buyers and those with less funding to pay to sort out problems - with freeholders and managing agents continuing to hold leasehold vendors to ransom over the provision of the leasehold information they will need to complete a HIP after 1 June next year. However this is resolved, we believe that CLG should provide evidence to support any decision they reach

EMPTY CONTENTS OF THE HIP

10.  It is clear that with such loopholes and exemptions contained in the Regulations, costly Home Information Packs are not the right vehicle to deliver Energy Performance Certificates. In the absence of the Energy Performance Certificate there is no meaningful Home Information Pack and the alignment of the two has been extremely damaging to the availability, roll out and credibility of the EPC which we believe is in danger of being buried in the public's uninterested, not to say negative, view of HIPs. Estate agent members of RICS are stating that their applicants (buyers) are showing no interest in HIPs whatsoever. If this situation continues, it means that they are not seeing or acting upon EPCs either. In summary, the Home Information Pack is ill conceived and as a policy has failed to deliver the benefits claimed.

11.  RICS remains unequivocally committed to the delivery of Energy Performance Certificates and would like to see them rolled out as soon as possible to all residential property together with information, education and incentives for home owners to act upon the reports. Home Information Packs and Energy Performance Certificates need to be de-coupled in order to help consumers to fight climate change in a coherent and cost effective manner. The HIP is irrelevant to this aim.

RICS JUDICIAL REVIEW

12.  In an unprecedented move in May 2007, RICS initiated Judicial Review proceedings against DCLG on for its failure to carry out proper consultation on the policy aspect of Home Information Packs. Following CLG's agreement to carry out a new consultation and pay RICS' legal costs, Judicial Review has been stayed pending a new 12 week consultation. This has been anticipated since July 2007 and RICS is dismayed that CLG has yet to publish such an important consultation paper. The judicial review could be re-activated if the government fails to demonstrate that it is a genuine process, or that it has prejudged the outcome.

13.  It remains RICS' view that the Article 7 of Directive 2002/91/EC on Energy Performance of Buildings is being used to prop up an ailing domestic policy through gold plating its implementation. In the absence of the Energy Performance Certificate there is no meaningful Home Information Pack

REFORM OF THE HOME BUYING AND SELLING PROCESS

14.  RICS is pursuing its own, positive agenda on the future of home buying and selling. Sir Bryan Carsberg, former Director General of the Office of Fair Trading, has been appointed chair of an independently run strategic review of the residential property sector. Sponsored by the National Association of Estate Agents, the Association of Residential Letting Agents and the Royal Institution of Chartered Surveyors the review will examine issues in the context of the process of home buying and selling; regulation and redress in the estate agency sector. 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 at a much lower cost to consumers and businesses.

December 2007

Letter from the WWF - UK

1.  WWF appreciates the opportunity to provide comments for the Committee's meeting on 11 December when consideration will be given to Statutory Instruments 3301 and 3302. Whilst WWF cannot provide technical comments on the specific provisions of either of these SIs, I would like to register with the Committee WWF's support for Energy Performance Certificates overall.

2.  Given that homes currently account for nearly 30% of the UK's carbon emissions and make up 22% of our ecological footprint, it is vital that home owners and lease holders are empowered to reduce the carbon output of their properties. Soon, statutory targets for carbon emission reductions will become a national imperative and carbon savings will be needed in every sector of the UK's economy. The potential long-term savings on fuel bills are an additional incentive that must be promoted when government considers measures to boost the energy efficiency of homes.

3.  In this context, WWF believes that Energy Performance Certificates (EPCs) can provide the first step towards enabling home owners to understand their home's carbon performance, make practical improvements to conserve energy and even generate their own energy. Used wisely in the buying and selling process EPCs can also help sellers bring properties up to higher standards in preparation for marketing and help buyers discern which properties will have a lower carbon output in the future.

4.  WWF was disappointed that EPCs could not be introduced to the whole housing market last summer but understood the reasons why the Government opted for a phased introduction of the policy, based on the number of bedrooms per home. WWF has consistently called for a timeframe to allow for the earliest possible introduction of EPCs across all UK homes and buildings and therefore welcomed the recent announcement that one and two bedroom homes will be eligible for an EPC from 14 December onwards.

5.  The Government must now bolster EPCs with immediate and effective financial incentives to encourage their use not just at the point of sale. WWF believes that EPCs will only have a significant impact on carbon savings, and therefore be judged a success in the future, if home owners are sufficiently incentivised to make energy efficiency improvements and to also generate their own energy. I do hope the Merits Committee will consider these comments during the discussion on 11 December.

3 December 2007

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4   The material provided by AHIPP about the wider benefits of HIPs has not been included here, but was included in AHIPP's memorandum of June 2007 which was published in the appendix to the Committee's 24th Report of Session 2006-07. Back