As a young lawyer I used to represent clients who were involved in road accidents. Provided it was not their fault, I could apply for legal aid which was publicly funded and once the case had been settled or sometimes litigated, the other side (the insurers) would pay the costs and any public money which had been incurred (fees for medical reports, engineers reports) would be duly repaid to the public purse. All-in-all the system worked well and the net cost to the Treasury was pretty minimal.
Nothing ever stays the same of course and, because of the rising cost of litigation generally, the Treasury decided it didn’t want the public purse to be involved at all in such cases and introduced new payment arrangements which effectively opened up the litigation market to outside funders.
When someone has an accident these days that’s not their fault, they may think it’s the worst day of their lives, but what they don’t realise is they are making someone else’s day – the engineer who inspects the vehicle, the body shop who carries out the repairs, the doctor who does the report on the shock and shaking up to the victim, the lawyer, the referrer of the case and the funder of the whole exercise. There is a whole, rather complicated and, some say, slightly unseemly industry built around someone’s misfortune and when everyone wants something, then overall the consumer ultimately pays.
Interesting analogies
What has this got to do with HIPS I hear you asking? I think there are some interesting analogies here. At the moment, a prospective seller will phone up maybe three estate agents to give them a valuation. Once an agent is picked, the house is put on the market, a buyer is found, an offer accepted and the sellers solicitors are instructed to prepare the contract documentation. They package the whole thing up and send it off to the buyers solicitors who then engage in something of a ritual dance around the documentation with the sellers solicitors that generally results in an exchange of contracts and shortly afterwards a completion of the transaction. This process takes on average six to eight weeks to exchange and two to four weeks for completion. Obviously this varies depending on a range of circumstances; legal issues (not generally insurmountable); time taken to get a mortgage offer; and whether there is a chain involved. It all works reasonably well and perhaps more importantly, all the players in the process have an interest and a contribution to make.
Moving on to June 2007, the landscape will look radically different in one very important aspect – the seller will have to provide a HIP on the property before the agent can market it. Easily stated, but there is already a whole industry emerging that will play its part in changing the dynamics of the house transfer market. The HIP provider is there to provide the seller with the HIP and that’s fine according to the law, but what the government has done is exactly what it did to the personal injury market – created an environment where outside players have spotted an opportunity to become involved in a process in which previously they had no part and thereby increasing the cost of the transaction, which ultimately the consumer will pay for.
Now, I can hear the enraged tap tap on computer keyboards now from HIP providers, penning vigorous responses to this. They will say I am talking nonsense and have disregarded the major benefits of HIPs, which will cut down on the enormous wastage at the moment of abortive survey and legal fees. Well I’m not sure they’re right, and we’ll all see in due course what the effect of this artificial meddling with a mature market will do, but I do know that there are going to be a number of new companies out there who are going to make a lot of money out of HIPs. At the moment there are aggressive marketing presentations to estate agents, lenders, solicitors and brokers by the various interested parties, each provider setting out their own personal vision of the landscape post-June 2007. There are all sorts of various scenarios being worked up – from the demise of the broker market through estate agency domination (I think we’ve heard that one before) to the demise of estate agents influence on the mortgage industry through new aggression by lenders (I think we’ve heard that before as well).
An ill-concieved solution
Just like the parsons egg, there will be good and bad parts to HIPs. I believe the initiative is ill-conceived and to some extent a solution to the need for the government to comply with European Directives on energy conservation. HIPs in themselves will do little to alleviate delay in the house transfer market (the buyer’s lender may still want their own survey/valuation), there will still be a need for the contents of the HIP to be questioned by the buyers solicitors (I don’t see an end to the ritual dance) and there’ll still be the chains.
Somewhere along the way, all the extra costs of implementing and providing HIPs has to be paid for and that tab will be picked up in part by the players in the market and certainly by the consumers. Quite apart from the further destruction of the rain forests through the need to produce a million or so 100-200 page HIPs, which, by and large, will be unintelligible to the first-time buyers to whom they will be presented, I find it unpalatable that the new entrants to this market are going to look to add to the cost of what is already an expensive service. We live in a constantly changing world and the broker market knows this more than any other but sometimes change isn’t always for the right reasons.
Eddie Goldsmith is a senior partner in law firm Goldsmith Williams
