Time to discard the PIPs

In July the Housing Minister, Yvette Cooper, announced that the UK Government had decided not to make the condition report element of the Homebuyers’ Information Pack (HIP) compulsory. The HIP and its remaining compulsory contents will, however, still be introduced in the summer of 2007.

The Housing Minister’s stated reason for removing the requirement for the condition report was apparently that lenders in England and Wales were not prepared to accept the HIP condition report as sufficient for mortgage purposes.

Other suggestions have been made that the government was persuaded to reduce the cost of the HIP by removing the most costly element – the condition report – in the hope of avoiding a bow wave of property coming onto the market in the spring of 2007 (election time) with people trying to beat the legislation.

What is clear is that there was a fairly united professional platform in England and Wales against the concept of the HIP, but it was the Council of Mortgage Lenders (CML) that apparently swayed the government’s decision.

So, does the story from England mean that in Scotland there is a reason to dust down our lobbying skills and try and persuade the Scottish Executive to revisit the matter of our home grown Purchasers’ Information Packs (PIPs)?

The Executive has already pushed through the legislation for the introduction of the PIP but its content is not set in stone. The proposed pre-sale questionnaire element is certainly a good idea and will deal with many issues arising at the negotiation of missives. However, it is still open for debate whether the PIP will have a compulsory condition report or valuation report.

The Scottish Executive has indicated that the purpose of the PIP is to solve three main problems which it perceives with the Scottish residential property market:

1.    Multiple Surveys. The theory is that if the PIP contains a valuation and condition report then purchasers will not have to pay for multiple surveys. In practice in much of Scotland the market has already moved to a “subject to survey” offer system, and the problem of purchasers paying for multiple surveys has disappeared in those areas (at present an average of 1.1 surveys are carried out per property in the whole of Scotland). There are other reasons why a condition and value report should be prepared for the purchaser and/or the lender and not at the instruction of the seller or the seller’s agent. The CML has said that in Scotland it will also require a separate condition and valuation report before lending. The net result is that if the PIP goes ahead with a required condition and valuation report element then, once again, there will be multiple surveys carried out for every property being sold. At least one will be required for the PIP and one for the lender for the successful purchaser.
2.    Improvement of the housing stock. The view of the Scottish Executive has been that the disclosure of problems with the condition of property will result in houses being improved. There seems no logical reason why this would be so. The existing system informs the purchaser of the defects through the purchaser obtaining a report on condition and value. The PIP system would do the same.
3.    Remove the problem of under-pricing. The Scottish Executive considers that “under-pricing” is wrong and that the PIP will stop this system. Again there seems no logical reason why this would be so. Any offers-over system (such as the one used in auction houses) is based on a starting price which bidders will usually bid over. How far over they go is a function of desirability of the item and the demand for it. Residential property is no different.

Any legislative change must surely be founded on a clear need or on substantial perceived benefits of the legislation. The legislation for the introduction of the PIP does not seem to fit either of these requirements.

So, why have we, in Scotland, failed to organise ourselves to persuade the legislators to step back from the introduction of the PIP? We certainly ought to care as it will have a major impact on our businesses.

Many property professionals in Scotland have been against the introduction of PIPs but they have not organised themselves to put forward a cohesive response. When the effect of PIPs starts to bite, the blame may rightly be placed on us for failing to look after the interests of our clients, the sellers of property, and to challenge the Executive to justify their stance.