Ministerial Speeches
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The following speech was delivered by Ian Wright MP at the AHIPP Annual Conference at the Business Design Centre, London, 16 October 2007.
Thank you for inviting me to address this conference on HIPs, which are now a genuine part of home buying and selling. In particular, I'd like to thank AHIPP's Director-General, Mike Ockenden, for the constructive work he has done with my Department.
The Case for Reform
We want to see a step change in home buying and selling, with real reform in a system that has not changed for a generation or more - a system which too often has not had the interests of the consumer at heart.
Home buyers and sellers have repeatedly stated that they find the process confusing, stressful and non-transparent. Many complain about a real lack of information in what is likely to be one of the biggest transactions of their lives.
Most recently, our own research published earlier this year, found:
- Average time from marketing to completion is over 6½ months, with 1 in 4 transactions taking 9 months or more.
- Average time from offer agreed to exchange of contract is getting longer - it is now 81 days, 10 days longer than in 1998.
- 23 per cent of buyers who completed a purchase had experienced at least one failed transaction during the course of buying their home.
It is clear then that all of us need to work together to improve the lot of home buyers and sellers. Home Information Packs are the first step in this process of reform and the catalyst for taking us further.
HIPs are bringing greater transparency and competition into home buying and selling. As part of the industry, you will now have first hand experience of this. You, the industry are absolutely key to the success of HIPs.
By providing key information up front, HIPs are ensuring that buyers and sellers are better informed, reducing the risks of problems emerging later in the process. We have seen examples of this already.
Another major plus is that HIPs will be free to first time buyers, helping them to get onto the housing ladder.
Energy Performance
HIPs also give, for the first time, energy ratings on homes in the form of the Energy Performance Certificate. The EPC also gives practical advice on cost effective steps homeowners can take to improve the energy efficiency of their home. I know you have heard all about EPCs this morning.
Under HIPs, consumers will, for the first time, have impartial information they can trust on the energy performance of their home. They will know where to go for advice on what to do next - the Energy Saving Trust's (EST) details are on the front page of the EPC. And help is available for those who might struggle to make the up-front investment through schemes like WarmFront, and energy companies through the Energy Efficiency Commitment (EEC).
All this means savings for consumers - the Energy Saving Trust have estimated that the average homeowner could save over £300 a year on their fuel bills by carrying out the basic recommendations in the EPC. Indeed, if only one fifth of homeowners made the basic changes set out in their EPC they could save around £100m a year on their energy bills and cut carbon emissions by the equivalent of taking 100,000 cars off the road.
Recent research on this element of the pack is extremely encouraging. Roughly half (48 per cent) of those surveyed by the Energy Saving Trust wanted to know the energy efficiency rating of their home. Almost a third (29 per cent) said that the energy rating would influence their home buying decision, while 37 per cent said that they would act on the information contained in the EPC.
And the EST's 'Green Barometer' found that 60 per cent of people want tailored advice on energy saving, which is precisely what the Energy Performance Certificate provides.
You Gov research confirmed this. It found that 71 per cent of people want more information about the energy efficiency of the home they are buying, while 77 per cent said it would influence their decision to buy. Nearly half (47 per cent) said they would make their home more energy efficient if they had more information on how to do it.
This is precisely why all of the major Green Groups agree that HIPs with EPCs will help families cut their fuel bills and help reduce the 27 per cent of carbon emissions that come from our homes.
As the World Wildlife Fund said 'The public appetite for better information about the environmental performance of their homes is on the up, and EPCs provide an easy and accessible way for them to assess this.' … 'A true win-win for cash flow and the environment.'
I know that some agents are encouraging consumers to act on their EPC, and I ask you to continue this. The challenge here for you, is to make sure potential buyers see the pack and the energy rating - including on property particulars as soon as the EPC is complete.
The Home Condition Report
I want now to turn to the Home Condition Report, which, whilst currently voluntary, is an important part of the pack menu.
Buying a home is one of the largest purchases of a person's life, so getting a comprehensive account of the state of a prospective home makes sense.
For sellers, the HCR differentiates the pack and gives a clear marketing advantage. It also provides an early opportunity to carry out repair work on the property or obtain quotes prior to marketing.
For buyers it provides important information at the beginning of the process, so that the possibility of being faced with unexpected repair bills or other nasty surprises is much reduced. With a HCR, potential buyers know what repairs they might be faced with, and what condition the property is in before, rather than after, the sale.
Key to the HCR are the lenders, who can use the Report to inform their valuations, reducing the need to repeat a detailed on-site inspection at the buyer's expense. In a standard and accessible format, it provides common information for all parties which should simplify processes between the surveying and lending industries.
Roll-out of HIPs and the Market
We are carefully rolling out Home Information Packs into the market. We want to ensure trouble free and measured implementation and so are monitoring the impact of HIPs in the marketplace before we complete the rollout.
Our early monitoring shows that implementation is going as well as we could have expected, without any major hitches. This gives us confidence in the system - the infrastructure, the accreditation schemes, and the personnel involved, many of whom are in this room. I want to thank you for the work you have done so far, and will come to some specific issues later.
The roll out to 4-beds and over accounted for about 18 per cent of the market and it did not take long to see that all the basic systems were working. That meant we could roll out to 3-beds fairly quickly on 10 Septermber. The combination of 4+ and 3-beds is just over 60 per cent of the market and this represents a more severe test of the systems that have been put in place. As you know for yourselves, these systems are currently standing up well to this increase in activity.
But we are at a time of unusual market conditions. Most serious commentators are clear that interest rate changes, house prices, the end to fixed rate mortgages for some consumers, stock market uncertainty, concerns about sub-prime lending across the Atlantic and the Northern Rock issue have determined the housing market over the summer. Against that background, it is to be expected that property owners might think twice about putting their property on the market, and that buyers might think twice before making substantial investments - and this is what we are seeing.
We also know that estate agents were encouraging home owners to list properties early in order to avoid the need for a HIP. As a consequence, it is unsurprising that there should be transitional effects on the timing of listings, with the number of properties coming onto the market artificially depressed following the introduction of HIPs. We are monitoring the housing market carefully to determine what impact recent financial market uncertainty has had and to confirm that HIPs have rolled out smoothly to larger properties. The latest evidence, published by Rightmove yesterday in their House Price Index, gives the strongest indication yet that the market for 3 bedroom and larger properties is returning to its normal seasonal trend. We will continue to monitor the market.
We said in the implementation plan that was published on 11 June, that we would take account of the lessons learnt from the operation of HIPs in the market - that consideration is taking place at the moment, and we will set out the timetable for the next steps in due course.
We have a responsibility to balance the needs of consumers and the housing market - but we fully recognise and understand the position of those in the industry who are affected by phased implementation.
So How are HIPs Going so far?
We kept the industry, as well as consumers, fully informed about the opportunities and benefits of HIPs - and we have worked closely and well with the industry to ensure the readiness. I applaud the ways in which industry has responded.
HIP Providers have reported smooth implementation and good feedback from agents and consumers, going so far as to say that 'HIPs have been an important catalyst in bringing about reform and consumer protection' (Mike Ockenden, AHIPP). HIPs and EPCs are already increasing transparency, speeding up the process of providing information, and bringing in new competition to help cut costs for consumers. Developments in e-conveyancing and online services are complementing this.
Estate agents are telling us that better information up front and more clarity for the whole process has to be a good aim and that HIPs are a step in the right direction. And as I mentioned earlier, some agents have pointed to transactions that might have failed later in the process being rescued by the information in HIPs. The packs are already acting as a catalyst for a more transparent housing market.
Some lenders are now saying that HIPs can have a positive impact by stopping transactions falling through. (statement by Jeremy Russ, Beacon Home Loans)
I can confirm that the average time taken to produce a HIP in September was 4-5 days and that the average cost of the HIP was, in contrast to scaremongering figures of £1,000, only £300 to £350 plus VAT.
More than 102,000 energy performance certificates have been lodged since 1 August and the average time taken to produce an EPC is between 2.5 - 4 days.
There are no significant issues around the acceptance of searches by lenders and solicitors so far. For example, the average turnaround time for a property search in London is under 5 days. The best authorities are providing searches within 1 or 2 days.
As you know, these searches provide valuable information about the prospective property, such as any conditional planning permissions, conservation areas, financial areements, and so on. By providing this information up front we make sure that buyers are more informed about the property they want to buy.
It is significant that the introduction of HIPs has improved competition and cut the cost of searches. Indeed, at least 85 local authorities have reduced their search fees since the introduction of HIPs with an average reduction of £30 (in some cases by more than £100). And some authorities have significantly speeded up their service.
We believe that searches need to be improved further, but it is also important to recognise that personal searches are protected by insurance - and to ensure that what is effectively misinformation about them is not spread around.
And it is very encouraging that 'the Exchange-ready HIP' features on today's agenda. We have heard very positive signals from solicitors in Plymouth, East Anglia and Liverpool, who are agreeing on protocols on what the exchange-ready HIP will contain.
Drop Dead Date and First Day Marketing
That is not to say we are looking at a perfect roll out. There have been minor areas of confusion that we would expect to see in any similar reform on this scale.
For example, we have heard of a small number of cases where sellers are being told they will need a HIP from 1 January 2008, despite putting their property on the market before 1 August. Of course this is not the case, but seems to be caused by confusion of the so called 'Drop Dead Date' and the 'First Day Marketing' provisions.
In the earlier regulations there was a date specified when all properties - no matter when they were put on the market - would require a HIP. This so called Drop Dead Date was due to come into force at the end of this year, but was removed in the latest set of regulations. This is still under review.
First Day Marketing was introduced in the new regulations, and allows properties to be marketed without a pack provided one has been commissioned and is expected to arrive within 28 days. This provision is due to end on 31 December this year.
While issues such as this are not presenting a problem at the moment, we will of course do our best to clarify any issues that you raise.
But, I also want to point to some evidence - including from our own 'drop-ins' on estate agents - that some estate agents are reluctant to share the completed HIP with sellers and potential buyers, passing them direct to the buyer's solicitor. Whilst it's vital that the packs are passed to solicitors, the challenge to you is to make sure that consumers see these packs, understand what's in them and what the benefits are. Of course, under the Housing Act 2004, an estate agent must provide a potential buyer with a copy of the pack on request.
And of course there are clear benefits to estate agents in sharing the HIP properly. Reputation, marketing advantage and best practice to mention but three.
Enforcement
I am sure that the vast majority of estate agents and other property professionals will abide by the law. But failure to comply with the HIP duties would, for example, impact on all other transactions in a chain. Effective enforcement is therefore essential.
Despite some media reports to the contrary, we have provided significant additional resources for this. Local Authority Trading Standards Officers and the Office of Fair Trading will enforce the Home Information Pack duties.
TSOs are ideally placed to carry out this function. They are already responsible for enforcing the Property Misdescriptions Act 1991 and parts of the Estate Agents Act 1979. Enforcement of the HIP duties is complementary to these existing activities, and therefore provides an experienced and cost-effective means of enforcement.
They will have a range of options. In the vast majority of cases, for example where someone has made a mistake in marketing without a document that should have been in the pack, TSOs will be able to provide advice or a warning and that will be the end of the matter. In cases where the breach is considered to be more serious, however, they may issue a penalty charge notice of £200.
Some commentators have suggested that £200 is insufficient, but the penalty can be repeated if the offence is repeated. More importantly, however, all breaches of the HIP duties must be notified to the Office of Fair Trading. A breach of the HIP duties is treated as an "undesirable practice" under the Estate Agents Act and action taken under this Act could result in the agent being required to cease trading. The OFT has given a clear signal that they will not hesitate to take action where someone is consistently in breach of the duties.
Next steps
We expect the drive towards better services for the home buyer and seller to continue apace. We will work with you to deliver maximum benefits for the consumer from the HIP and considering ways we can go still further. I welcome the market innovations around HIPs which we have been hearing about, some of which you are discussing today. But HIPs are only the start.
To look at further reform, we have set up a stakeholder panel, led by the industry, to point the way ahead. As well as the industry, this advisory group on home buying and selling also includes consumer and green groups. It will set out priorities which we will then take forward with the industry.
HIPs are just the first step in what will be a transformation of the home buying and selling process - one that will benefit the consumer and the environment. That is something we can all support.
