In 1997, one of Labour's election promises was that they would reduce the number of house sales that fell through by introducing Home Information Packs (HIPs)
HIPs would contain everything a buyer needed to make an informed decision on a property, from a structural survey to details of building regulations.
But as with all the best-laid plans, the HIPs that will be compulsory for all homes from 14 December aren't quite what they were meant to be. The structural survey has been dropped and many of the other documents made optional.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In fact, today's HIP provides so little information that one estate agent told me not a single buyer had asked to see one since they were introduced on four-bedroom homes in August.
About the only thing HIPs have been successful in doing so far is creating jobs. More than 2,000 people have trained as Home Inspectors, which entails checking the age, condition and energy efficiency of houses for HIPs.
Judging by the Government website, which lists Do you want to become a Home Inspector?' higher in the HIP menu than the section telling you what a HIP actually is, this might have been the main point.
What are Home Information Packs?
But regardless of HIPs' true purpose, soon anyone wanting to sell a home will need one. So what exactly are they? The idea behind a HIP remains the same as in 1997. It is meant to help buyers make an informed decision about a property before making an offer, by delivering necessary paperwork upfront rather than after an offer has been made. It is also meant to speed up sales, as once a sale has been agreed many of the documents the lawyers would need will already have been read.
At present, a HIP must include the following: an index of what is contained and what has been ordered; a statement summarising the terms of the sale; evidence of title (ie, Land Registry documents); standard searches, including local authority searches on planning decisions and road building proposals, drainage and water services; an Energy Performance Certificate (EPC); and in the case of leasehold properties, details of the lease and service charges.
Of all these things, the EPC is the only new item. Everything else would have to be produced after the sale had been agreed, but before exchanging contracts. The EPC tells buyers how energy efficient a property is, using the same A to G ratings used on items such as fridges.
The Government hopes this will be an incentive to cut carbon emissions homes account for 27% of the UK's emissions and they are accompanied by tips on how to improve the home's energy efficiency. The most useful aspect for a buyer is that an EPC can help you work out how high your energy bills may be.
How do you get one?
How do you go about getting a HIP and when does it have to be ready by? Most estate agents have set up agreements with HIP providers so that you can order one through your agent. As to when to do it, at present the law states that you can begin marketing your property as soon as you have ordered your HIP. However, this will change in June 2008 when all the compulsory HIP components will have to be in place before the sale board can go up.
This could significantly delay the marketing of a property, as some searches can take anything from ten days to two months. But more to the point even though this information sounds useful, the trouble is it will most likely be out of date by the time the property actually finds a buyer, particularly as the market gets steadily weaker.
That means that many lawyers will still require all the searches to be done again once the sale has been agreed, as the HIP will be considered inaccurate which means that both the buyer and the seller have paid for the same searches twice. Bearing in mind that HIPs will cost between around £350 and £700, that's an expensive piece of duplication.
Can you avoid getting one?
So given that HIPs are costly and virtually pointless, is there anyway to avoid getting one? Unfortunately, the Government seem to have made this legislation watertight. After 14 December all properties sold have to have one the only exceptions being developers selling new-build properties and commercial property.
The sole loophole is for buy-to-let owners selling a home with a sitting tenant this is classed as a commercial property, meaning that a HIP is not required. However, tenanted properties tend to fetch lower prices, so this isn't really an exploitable loophole and should the tenant move out during the selling process, you'll then need a HIP.
There may have been a good idea somewhere inside the original proposal for HIPs, but the finished article will do nothing to address the problems of deals falling through particularly as arguably the most important document, a survey, isn't included anymore.
And the scheme will only increase the cost of buying a home: while the seller funds the packs, there aren't many people in the market these days who can afford to buy without selling a house first. As Nick Salmon, the founder of anti-HIP group SPLINTA, puts it, "to borrow from Winston Churchill, HIPs are a farce wrapped in a muddle inside a cock-up".
-
House prices rise 2.9% – will the recovery continue?House prices grew by 2.9% on an annual basis in September. Will Budget policies and ‘higher-for-longer’ rates dent the recovery?
-
Nvidia earnings: what to expectNvidia announces earnings after market close on 20 November. What should investors expect from the semiconductor giant?
