What you need to know

You may have read about the introduction of Home Information Packs (HIPs) into the house buying process but perhaps it is not clear what this will mean to you if you are planning to move house from June 1 2007.

To try and help you, our Residential Property Team has compiled a list of frequently asked questions which are below:

Q: Why does the Government think we need to change?

A: The government wants to improve the home buying and selling process by insisting that the sellers of most residential properties prepare a HIP before their property can be marketed.

The idea is to offer more transparency early in the process so that a potential buyer can make an offer for a property based on factual information. The intention was to make transactions clearer, less stressful, quicker and less likely to abort. Unfortunately, as the Government have decided to water down the HIP due to recommendations from estate agents, lenders and surveyors, it remains to be seen whether this will be achieved.

A similar system has been used for some time in various countries around the world including the US, Australia and Sweden.

Q: What are they?

A: A HIP is a pack of information that will contain useful information for a purchaser of a property. It will have to contain:

However the precise details as to what is to be included in the HIP have still not been finalised. It is likely that some information that a Buyer will require will not be mandatory for the HIP. It is probable that the contents of a HIP will be expanded may be to include a Home Condition Report (HCR) (effectively a survey, commissioned and paid for by the Seller).

Q: How much will they cost?

A: Estimates vary but the government has suggested that the cost will be £350-500 for an “average” property. This may increase to £600-1,000 if a HRC is required in the future. A lot will depend on the type of property and where it is as different Councils charge different fees for searches. Also HIPS for leasehold properties will cost more than the basic £350-500 as more information has to be included, some of which has to be obtained from the landlord or managing agent.

Q: Who will pay for the HIP?

A: The seller. This is likely to mean that sellers will think carefully before putting their properties on the market because of the expense they will need to incur beforehand. Clients will have the choice to pay up front (which will be cheaper and a little quicker as fewer forms need to be completed) or to use a finance scheme deferring payment for possibly up to a year or until completion depending on which occurs first.

However a seller may instruct their Conveyancer to try and recover the cost of the searches within the terms of the contract.

Q: Is everyone in favour of the proposed change?

A: No. There is a large amount of opposition to the introduction of HIPs. Estate Agents say that they will take too long to compile which will delay the marketing of properties. (The Council of Mortgage Lenders have expressed concern about the impact of HIPS on the property market although the Governments “watering down” of required documents should help with this). Concerns also remain about the training and regulation of Home Inspectors because of multiple certification schemes. Since the Government announced the HRC was not going to be mandatory a large number of inspectors have withdrawn from the required training and there is a doubt if there will now be enough to do the number of EPC's needed at least in the early stages.

Mortgage lenders say they may not rely on the HCR and will still need to carry out a valuation.

The Law Society and National Association of Estate Agents are concerned that the new requirement will restrict the number of properties coming on to the market, will affect prices and have an adverse affect on first time buyers in particular. One group which may be disadvantaged by the introduction of HIPs is the growing elderly population, who often sell to move into sheltered accommodation and pay for care. They will therefore have to pay for full packs, but are less likely to benefit from the scheme f they are not buying another property.

Q: When will they apply?

A: Currently the start date is 1 June 2007 which means that from this date a residential property cannot be marketed for sale without a pack. If a house is on the market already it can continue to be sold but will (at the moment) need a HIP from November. This may change until March 2008. Once the final regulations are published (end March 2007) there may be other transitional provisions intended to make the introduction of HIPS more user friendly.

Q: Who will need to prepare a HIP?

A: Anyone who is selling a residential property (known as the “responsible person”) after 1 June 2007 will need to have a pack available for a potential purchaser and (subject to the transitional provisions) it will be a criminal offence to market a property without a pack. Usually the estate agent marketing the property will distribute the packs to interested buyers.

However, Estate Agents do not have the sole ability to supply a pack. There may be significant advantages to asking your Conveyancer to do this as:

BE CAREFULOF ACCEPTING FREE PACKS. There could be a hidden catch. Please remember we will be able to prepare your HIP for you at a competitive fee and so as to retain your flexibility in relation to marketing the property.

Q: Does the responsible person have to supply a HIP to anyone who asks for a copy?

A: No, there are three occasions when a HIP does not have to be provided which are as follows:

These three situations are vague and the responsible person has to ensure that unlawful discrimination does not take place.

Q: Can the HIP be provided in an electronic format only i.e. by email (pdf file), CD or memory stick for example?

A: Only if the buyer consents otherwise a hard copy needs to be provided, within a 14-day period. The responsible person can make a reasonable charge for providing a hard copy.

Q: What documents have to go in the HIP?

A: There are two types of documents that are included - "Required" and "Authorised" documents. The lists of Required (those that must be included) and Authorised (those that can be included) documents are different for registered freehold properties, un-registered properties, leasehold properties and commonhold properties. Documents, which do not fall into either category, cannot be included.

Q: Who will be able to rely on the HCR (if included?)

A: The seller, the buyer and any mortgage lender. However most lenders have so far said they will not rely on it and buyers will probably need to pay for their lender to undertake its own valuation.

Q: How long will the HCR last?

A: There has been no decision, but hopefully this will be covered by the final regulation.

Q: How long will the HIP last?

A: It is difficult to say but generally lenders will not allow conveyancers to accept searches that are more than 6 months old. Searches cannot be more than 3 months old when they go in a HIP. The shelf life of a HIP would seem therefore to be 3-6 months. This raises the question of a seller being expected to pay for fresh searches or Search Validity Insurance. Again, we hope the final legislation will provide a definitive answer.

Q: How long will it take to compile a HIP?

A: Our first HIP took about 8 days, but it depends on how long the Councils and Water Company’s take to do the searches and the Inspectors take to do an EPC. The aim is to have a HIP within a week to a fortnight. However, in certain circumstances a property could be marketed after 14 days if the HIP is still incomplete.

Q: What types of properties do not require a HIP?

A: Some examples are tenanted properties, business premises, portfolios of properties, unsafe properties properties due for demolition and new properties.

Q: When is a property classed as being on the market?

A: When its availability, or possible availability, for sale is advertised or otherwise made known to the public or a section of the public in England and Wales. If the property were only advertised, perhaps by word of mouth, to a neighbour or friend (as opposed to ‘the public’) a HIP would not be compulsory.

If you require any additional information on HIPs or if you would like to speak to a member of our Residential Property Team please contact us at any of our branches.