Commercial insurance article archive
House prices and HIPs - what lies in store for the housing market
The effects of the introduction of Home Information Packs (Hips) and a slew of contradictory data are confusing the market, so what does the future hold for homebuyers and sellers?
As an indication of the importance placed on Hips by the government, the latest figure of the implementation costs was £11 million, spent on legal fees, salaries, administration and trials of the scheme around the country.
Although this remains well under the allocated £16 million budget for the implementation, launch day will likely increase the cost somewhat. But as that day approaches, accusations and recriminations have been thrown back and forth between the pro and anti-Hips camps with no clear picture appearing. The only thing that remains certain is that Hips will come into effect on June 1st.
But even that has not filtered through to the housing market, as online property site Primemove reported in March that 40 per cent of its users believed the scheme had been scrapped.
Such a lack of knowledge in some sections of the market encouraged doom-mongers to predict a chaotic opening for the scheme - an opinion which was further boosted by Telegraph reports that claimed there would be a lack of inspectors to issue the much-heralded Energy Performance Certificates (EPCs) which form a major part of the Hips scheme.
Suggestions of this sort provoked a natural backlash from the pro-Hips lobby and the water was muddied with predicted figures of inspector levels rather than factual statistics.
But some groups are dug in with their views about Hips and have pledged to see them either rewritten or abolished. One such industry leader is the director of Legal & General, Stephen Smith, who predicted that buyers may see Hips as "incomplete" without Home Condition Reports (HCRs) and said that making items optional would create more levels of complexity in the system.
Mandatory HCRs were made an optional extra in July last year and Mr Smith expressed his misgivings about how effective the Hips will be in their new form.
"We are predicting that the take-up of 'optional' items within the packs will vary greatly across the country," he said. "This may lead to consumer confusion and will not have the desired effect of combating the common delays and failures in the home buying and selling process."
However, this was countered by the Law Society who said that the dropping of HCRs was positive as it would be unworkable as buyers "could not sensibly rely on a survey commissioned and paid for by the seller".
Another detractor from the scheme was Michael Coogan, head of the Council of Mortgage Lenders, who called for their abolition last year at an industry dinner, saying that there were not enough inspectors for EPCs and "if a significant number of packs will include home condition reports on a voluntary basis, the market impact of a shortfall in home inspector numbers will be severe."
But the deputy director of the Association of Home Information Pack Providers (AHIPP), Paul Broadhead branded such comments from the anti-Hips camp as "untrue, indefensible and a feeble attempt to misinform the public for private gain".
He focused on three "lies" – claims that there will be a shortage of energy assessors, suggestions that Hips would cost £1,000 each and that Hips would have a negative effect on the housing market.
Taking each point one at a time, Mr Broadhead said that "under no circumstances will we not have enough energy assessors", adding that "market forces will keep the cost of packs competitive" and explained that "Hips will reduce the number of transactions that fall through, saving customers time and money".
Perhaps the calmest head among all of these was that of Lesley Sorridimi of provider Hip Hip Hooray. Despite the entrenched camps on both sides, Ms Sorridimi advised that Hips are "legislation now" and argued that estate agents "are just going to have to get on with it".
Such has been the way of things during the build up to the launch of Hips so far, but what are analysts and experts expecting for the days after the launch?
Apart from predicting chaos due to a lack of preparation, pessimistic commentators suggest that the market will see house prices drop due to the double-whammy of Hips and rising interest rates. The Evening Standard reported that industry leaders were afraid that the added cost of a Hip would discourage sellers when coupled with higher interest rate costs.
This view was shared by Miles Shipside, commercial director of Rightmove, the UK's largest property website, who said that it could lead to many sellers trying to beat the Hips introduction by selling up earlier.
It is true that there has been a rise in sales in recent months, but this coincides with the traditional busy Easter period and house price rises have in fact sped up so far, aided by the shortage of housing. Whether this is a bubble leading to a collapse is unclear as it all depends on how well prepared all parts of the industry are to deal with Hips.
But there could be a relatively smooth transfer into Hips as membership of the AHIPP has surged in the last months. Thirty per cent more applications were received since the start of the year, suggesting that organisations are preparing for Hips by getting as much information as possible.
Mike Ockenden, AHIPP's director general, welcomed this new interest in getting ready for Hips, saying: "A growing number of organisations … are now looking to join the association to gain access to a widening pool of information and contacts, in addition to up-to-date information on any industry developments or requirements."
So if organisations are ready and if enough assessors are trained in time, it all seems to be plain sailing for Hips. That is until you look at predicted repercussions of the program in the future.
By imposing a ban on marketing a home for 14 days until a Hip can be put together at a cost of around £600, there are worries that the speed of transaction could actually slow, which would again discourage sellers.
If this were to happen, property that makes it to the market would likely see even larger rises in price, forcing first-time buyers further into a corner.
Other misgivings about the scheme focus on the database of all Hips produced which will be compiled by the government. As it is unknown what the government will put this vast amount of information to use for, it is described by the former president of the National Association of Estate Agents as "an ill wind".
Privacy issues aside, concrete market effects in the long-term are thought to be a housing price crash in 2008.
With the Bank of England raising interest rates twice in recent months and set to do so again in May due to spiralling inflation, the market is already under pressure and recently more and more industry insiders have predicted that Hips will push the market over the edge.
"We are now clearly at the end of the house price boom," said Diane Choyleva of Lombard Street Research last month. "We think there will be a correction next year, although it is unlikely to be as severe as the last crash."
Lombard Street conducted a survey showing that house prices were continuing to outpace rises in wages while mortgage bills were also charging higher rates. Both these factors could also contribute to a downturn in the market.
Analysts are understandably concerned that the UK could go the way of the American housing market which has seen a 'credit crunch' as lenders have restricted the money they pay out in mortgages - leading to rapidly falling prices as buyers can no longer afford as much. With the UK having a history of following the US market this is making some market commentators jumpy, especially when coupled with uncertainty over Hips.
"When the US catches a cold we tend to get one as well," said Jonathan Davis, a spokesman for the housepricecrash website.
"Certainly if the US economy goes into reverse and there are job losses, world economic growth and that of the UK could be affected," agreed Ray Boulger of mortgage broker Charcol. "This could, ultimately, have a dampening effect on the UK housing market."
But Mr Boulger also pointed out the differences between the market conditions of the US and UK, especially the short supply of housing and the relative prudence of UK mortgage lenders, as reasons why he believes the market will escape a crash.
Such underlying factors in the market bolster the strong growth which has been enjoyed over recent years. Hips may cause a period of uncertainty if they create chaos and prove useless to sellers and buyers alike, but it seems unlikely that they will cause such confusion that the market is turned upside down and plunged into a downturn.
The effects of the implantation of the scheme are far more likely to be small-scale and affect the purchasing process either adversely or positively on a deal by deal basis. While this will probably result in some horror stories and some triumphant tales, the larger picture of the housing market will probably see little impact - other factors such as interest rates have much more of a role to play.
04 May 2007