– in Westminster Hall at 4:30 pm on 24th May 2006.
I am pleased to have this short debate on home information packs, better known as HIPs. This is not the first time that they have been debated in this place and it will probably not be the last. Given the number of hon. Members who wish to speak, I shall try to be brief and not cover all the objections that I and others have to HIPs. Suffice it to say, they are included in early-day motion 2240, which is entitled "Introduction of home information packs" and was tabled by my hon. Friend Michael Gove. I also pay tribute to my hon. Friend Mr. Liddell-Grainger for his recent excellent ten-minute Bill on the subject.
Having spoken to a variety of groups from all sides of the HIPs debate in recent days, I have picked up a common theme, which is perhaps best described by an individual whose role it is to promote and sell HIPs but who unsurprisingly does not wish to be named this afternoon. He told me that doing something to help house buyers was long overdue but that with HIPs,like other new Labour policies, the execution was fundamentally flawed.
HIPs are a new stealth tax, dressed up as a proposal to help hard-pressed buyers in the housing market. However, rather like the huge stamp duty hikes seen in recent years, which were introduced in the name of cooling down the housing market, while netting the Chancellor huge amounts of additional funds, HIPs will create a whole new tax scheme for the Treasury. Assuming annual home sales of around 1.3 million, it will take an average HIP price of only £770 to create a new billion-pound industry in this country. That would result in an additional £175 million going to the Chancellor each year in VAT. Moreover, the tax is regressive, as it seems quite possible that the cost of putting together a HIP for a studio flat might be the same as for a mansion.
My first objection to HIPs is therefore that they add another part to the complex process of buying and selling a property and will probably not remove any of the other hurdles. Currently, some 80 per cent. of buyers do not have a formal or second-level survey. Those who are borrowing to fund the purchase—that is, the home buyers—consider the lender's valuation survey, which is, after all, designed solely to protect the lender's interest, to be sufficient. However, lenders are not compelled to accept the new home condition report as a basis for valuation, and many lenders have signalled that it will be no substitute for a full valuation.
The Government say that the pack will have "very little impact" on the number of completed sales taking place each year, yet research has suggested that up to 30 per cent. fewer properties would come to the market if the seller had to pay for a pack. Even if only 10 per cent. of properties were taken out of the supply side of the market, the likely result would be inflationary to house prices. In turn, the decline in the volume of homes coming to the market would doubtless exacerbate many of the problems in the housing market, such as having too many empty homes, and increase the pressure for more new homes to be built, because of supply shortfalls of existing homes in the market.
It is tempting to think of the housing market as constantly rising, as it has been over the past decade, but even more alarmingly, HIPs will have a deeply negative impact in the event of a falling housing market. Liquidity will dry up. Those facing negative equity who might be forced by their financial circumstances to sell—thanks to a job loss during a recession, for example—will be hit with a charge of up to £1,000 to create the HIP, on top of all the other miseries involved in a distress sale of one's ownhome. Others affected could include those needingto downsize in the event of changed personal circumstances, such as job relocation or disability.
The potential cost of the HIP is made worse because the pack has no shelf life. As some of the information to be contained in it is date-sensitive, such as local authority searches, the pack will need to be updated, at further expense to the seller, especially in a slow market. No responsible estate agent, surveyor or lawyer would recommend that a purchaser should rely on a potentially outdated report. I foresee that when the market is slow, a lot of money will be spent on updating the pack.
As to enforcement, as we know, the duty to provide a HIP lies with the estate agent. However, the penalty for not doing so is only £200. If the transaction fee for the estate agent is a few thousand pounds, the temptation to skim the HIP or not provide it at all may be too great. That links into enforcement, which presents a further problem. According to my information, enforcement will be down to council trading standards officers, who are thin on the ground these days.
In my experience in Hammersmith and Fulham under the outgoing and very incompetent Labour council, it is tough to get such officers to investigate things such as prima facie examples of dodgy builders who, having given promises about loft extensions, make off with tens of thousands of pounds from old ladies. Generally, the trading standards officers are not interested in knowing. The fine for not providing a HIP is only £200, and my expectation—it is only that—is that many in trading standards will simply not bother to pursue the matter.
I thank my hon. Friend for his help in preparing my ten-minute Bill, which, as he is aware, comes back in October. I am sure that the Minister will be interested in one of the problems that we both faced—the number of HIPs providers there in the first place. There are so few. Does my hon. Friend agree that not only can we not enforce HIPs, but they cannot be provided in the first place? The people to provide them are not there, and such people cannot be trained before HIPs come into operation.
I agree absolutely. I was alarmed to see reports in The Times on Saturday about how few trained HIPs officers there are.
Given that situation, does my hon. Friend not think that it would be eminently sensible for the Minister to delay the onset of HIPs by holding a meaningful pilot so that we can see their impact on the housing market and consider how we can develop more HIPs consultants?
I thank my hon. Friend for that intervention. It would be helpful to have a real pilot, although I was not going to go down that route, given the limited time available. My personal view is that HIPs should be abolished entirely rather than reformed.
I come back to trading standards. I have also not heard of any additional funding for local authority trading standards to finance effective policing. I bring another interesting consequence of the HIP to the attention of the Chamber. Statistically, the majority of properties in Britain will have changed hands in 20 to 25 years' time, and the Government will then have an extensive and detailed database of all those properties. It would be cynical to suggest that that could form the basis of a tax, but the temptation would be there; in the hands of the current Chancellor of the Exchequer, there would certainly be the potential for a new Domesday Book in this country, although I doubt whether he would have that job by then. On a similar issue, anybody—not only those genuinely interested in buying the property—will be able to access the information given in a HIP. I see a field day for snoopers intrigued by the homes of their outgoing or incoming neighbours.
Finally, I turn to the likely impact on my constituency of Hammersmith and Fulham. It has a huge number of flats, which make up 71 per cent. ofits homes. That compares with a national average of19 per cent. Even without HIPs, the young professional flat owner gets a very raw deal under new Labour; that is part of the reason why Hammersmith and Fulham turned a dark shade of blue earlier this month. In marginal wards, the number of flat owners is even more stark. In North End ward, 88 per cent. of homes are flats; in Avonmore and Brook Green ward, the figureis 86 per cent.; in Addison ward, it is 79 per cent.;and so on.
Such areas are characterised by people who have bought a one or two-bedroomed flat. They already pay hugely more in taxes generally, but when it comes to a home sale under HIPs, the buyer in my constituency will already be whacked by stamp duty of 3 per cent. or occasionally 4 per cent. on the price—cash that they need to find up front. The seller will now also be hit by an up-front tax of up to £1,000 to buy a HIP.
I spoke to one prospective HIP provider yesterday, who thought that for the larger firms, the turnaround time to build the HIP might be as short as four to five days. However, it would take weeks or even longer if the property were leasehold, as there is currently no provision to force a managing agent to supply the information. Yet that is crucial in my constituency and across London, where there are tens of thousands of leasehold properties.
The problems really begin when it comes to getting information out of a managing agent. I spoke to a London estate agent yesterday who told me that HIPs are particularly feared in London because of the large number of leasehold properties. Managing agents are often notoriously unresponsive unless their financial interests are directly threatened; they have no real incentive to provide the relevant information for a HIP. Rightly, the big fear is that they simply will not deliver it on time, the market will get slowed up and the reputation of HIPs in general will start to suffer in London, which could have a disastrous impact on the reputation of the whole scheme.
There are well-rehearsed arguments against HIPs, and I have not detailed all of them, as I am sure my colleagues would agree. I am yet to see, other than directly from the new billion-pound-a-year HIP industry, any real answers from the Government to those concerns. I and my constituents want to see not more promises but, if hon. Members will excuse the pun, a complete HIPs replacement.
It is a pleasure to serve under your chairmanship today, Mr. Bercow. May I thank my hon. Friend Mr. Hands and the Minister, who is in her place, for giving me permission to speak in this debate?
As my hon. Friend said, home information packs mark a significant state intervention in the property market, with potentially disruptive consequences for consumer confidence. That is why I would like to give the Minister the opportunity today to try to reassure consumers. Her work is formidable; if one examines the scale of opposition to HIPs, one will see that nearly every interested group in the property market has deep worries about the implementation of the scheme. Independent estate agents, and indeed the National Association of Estate Agents, have outlined deep opposition to the scheme. Only this week, 80 per cent. of building society chief executive officers have said that they believe that HIPs will have a negative impact on the housing market.
Why does the Minister believe that that is so? Building society chief executive officers say that HIPs will add costs to the home-buying process, not reassure prospective buyers or speed up the process, and reduce the number of properties in the market. If those with a direct stake in the effective functioning of the market are so worried, what can the Minister say to reassure them? It is not just building societies; the Law Society has also signalled its concern, as has the Royal Institution of Chartered Surveyors.
The Council of Mortgage Lenders has also tried its best to ensure that the scheme will work, but only this week it spelled out its concerns again. The majority of lenders have made it clear that in a significant number of cases the home condition report, to which my hon. Friend referred, will simply not be enough to guarantee a loan; an evaluation or survey will be required. There will be additional costs for both seller and buyer, additional taxation for the Chancellor and additional pain in the market.
The Minister is fond of saying that consumer groups favour the home information pack. Will she tell us which groups—in the plural—actually favour the pack? As far as we can see, only one organisation representing consumers has made representations in favour of the pack. Will she tell us on what statistical basis she can say with confidence that consumers welcome it?
Talking of a statistical basis, the evidence basis for the introduction of the HIP is, as I am sure we all know, the "Key research on easier home buying and selling" document produced by the Department of the Environment, Transport and the Regions in 1998. However, that evidence was based on fewer than30 transactions. Will the Minister tell us what evidence base she has for her belief that HIPs will bring the benefits of which her Department has boasted?
Talking of rigorous evidence, my hon. Friend referred to the need for a dry run. In an answer that the Minister was kind enough to give me, she said that a dry run would operate on an entirely voluntary basis. Indeed, we understand that it will be overseen by the HIPs providers themselves. How can the providers sit as judge and jury in their own case?
In November 2004, the Lord Rooker indicated that a compulsory dry run would take place in a local area. Has that promise now been abandoned? Will clear benchmarks and criteria be published by which we can judge the success of the dry run or will providers of the packs simply be encouraged to give them to buyers, say they have been a tremendous success and allow the Department to proceed willy-nilly without the firm guarantee of consumer confidence that we need? If we are to have a successful dry run we need home inspectors. How many home inspectors are qualified? We know that there are only 200, because of the extensive investigative work of Valerie Elliott, the consumer affairs correspondent of The Times.
The Minister says that 4,000 home inspectors are in training. It takes only five days for someone who knows something about property to qualify. However, before Christmas 1,750 people were in training, and five months—not five days—later, only 200 have qualified. What guarantees do we have that there will be enough home inspectors and that those people will have any real background in the construction industry, surveying or any of the skills required to provide consumer confidence? Those matters go to the heart of ensuring that the housing market functions effectively.
The Minister will be aware that there is a new consensus, led by my right hon. Friend Mr. Cameron and my hon. Friend Mr. Osborne, on the need to increase housing supply and help first-time buyers. It would be a tragedy if that new consensus were disrupted by the introduction of an ill-thought-through intervention in the market. I invite the Minister to join me and Mr. Field and Dr. Gibson, who have signed my early-day motion, and to forge a new cross-party consensus to find a voluntary way forward.
Order. The hon. Gentleman's elastic interpretation of two minutes must not be replicated by Mr. Clifton-Brown.
I take your stricture absolutely, Mr. Bercow, and I amlooking carefully at the clock. I congratulate myhon. Friend Mr. Hands and declare to the House an interest in the matter as a chartered surveyor.
I want to raise one or two points that have not yet been raised in the debate. My hon. Friend Michael Gove referred to Valerie Elliott's article quoting the figures obtained fromthe Minister's Department, showing that there are currently only 196 trained inspectors, and that 4,000 are in training and 7,000 are needed for the 1.5 million sales that take place each year. The problem is obtaining inspectors of the right quality.
That brings me to my next point. Many of the inspectors will be of low quality, and have low-quality training. It takes five years to train a chartered surveyor. The people involved will be trained in a year and will be required to carry out at least four home surveys a day, whereas I as a chartered surveyor would probably deal with only two a day, because I would be much more thorough.
The next question to arise is how the inspectors will obtain professional indemnity insurance, especially given that that is likely to be expensive because of their low quality and because purchasers will be able to sue them if their inspections are deficient. Also, how does the Minister think that the energy efficiency reports system will be ready to come into full operation for1.5 million houses next year?
I end with a quote from Valerie Elliott, who says in her article that there could be
"a year of panic selling to avoid the extra costs that will be incurred with the pack" which is
"likely to be followed by a stagnant market".
I recommend to my hon. Friend the Member for Surrey Heath that when he is in the Minister's place in four years' time he should drop sellers packs and instead concentrate on speeding up the efficiency of electronic searches and conveyancing. That will do more to help the market than the home sellers packs will ever do.
I congratulate Mr. Hands on securing today's debate and choosing such an interesting and important subject.
Opposition Members are opposed to home information packs. That is obviously not news; I know that many of them have been opposed to them for a long time. It is perhaps a shame, however, that they have not taken advantage of their change of leader and change of direction to the compassionate conservatism that Michael Gove is very proud to proclaim at every opportunity to have a rethink about this policy issue. They may claim to be compassionate Conservatives, but they are still clearly not consumers' Conservatives. They are still, on this issue, the party of the vested interest.
The hon. Member for Surrey Heath said that there was concern on the part of interested groups. That is certainly right; there is concern from groups with vested interests. There is concern among groups that make money from the current process and do not want to innovate and to change the way in which they operate. We recognise that those concerns exist. However, it is also right for us to take consumers' interests seriously. The biggest consumer group in the country, Which?, has been campaigning for home information packs for a long time. Frankly, Opposition Members are unwise to set themselves against such a major consumer interest group, because that independent voice has been calling for the change for a long time.
I asked the Minister directly if she could name more than one consumer group that supported the introduction of home information packs, and what the evidence base was. Apart from the Consumers Association, can she name any other groups?
Let me give the hon. Gentleman the evidence base to which we refer. The Consumers Association conducted a survey in which it asked 1,000 people who had bought or sold their homes at the end of 2003 how useful they thought it would be to receive a HIP, including details about the condition of their property, and 82 per cent. said that they thought it would be very useful. A year later, in a follow-up survey, 1,824 people were asked for their views on HIPs, but on the assumption that they would have to pay for them. They were specifically asked whether they would be in favour of HIPs if they had to pay for them as sellers, and 78 per cent. said that they would be a good idea. Not only has Which? done its consumer research; it has considered the process in some detail.
I shall respond to some of the points made in the debate. We have to start from the perspective that the current system is not working. It is madness, as we waste £350 million a year on failed transactions. That is the case partly because people make an offer based on limited information. They then start paying for more information through searches and a survey, and the legal fees start ratcheting up—and then the sale falls through. Along comes another potential buyer who has to pay again for all that information. That can happen again and again. Such duplication is hugely inefficient.
I shall give way once more, but I have ensured that all hon. Members have had time to speak in the debate, and I want to respond to the points that have been made. I shall give way once now, but I shall not give way again until I have made some progress.
Does the Minister accept that her figure of £350 million is nevertheless massively less thanthe figure of anything between £700 million and£1 billion—the cost of the HIPs industry—and that the net loss to the consumer will be more than double?
That is complete nonsense. The fact is that the information provided by HIPs is largely provided in the current process. However, it is now provided at the end of the process and only after a huge amount of money and time has been spent trying to get hold of information that may not be needed because the sale has fallen through.
That is a waste. It is a market inefficiency and a classic example of a market failure, with a lack of proper transparency and proper information. Let us try to imagine making an offer for a car without knowing whether it had passed its MOT. People would not do it. Why should we have a system in which someone makes an offer, the seller accepts it, but the deal is done on the basis of very limited information? With such a huge asset and when so much information is required before the deal can be completed, why should we use a system that causes inefficiency and protracted delays and that has such huge costs?
Those who seek to defend the existing system are trying to defend the indefensible. The question is how to improve it. [Interruption.] Mr. Liddell-Grainger has started to list those who want to defend the current system, all of whom currently make money from it. It is important to consider the consumer's perspective. The approach is about preventing duplication, providing information up front and dealing with the lack of transparency.At the moment, when somebody is waiting for information, they do not know whether it is the fault of their solicitor or the other party's solicitor, or even whether it is the estate agent's fault. People can spend much of the time in a fog, but if the information is provided up front in a home information pack, they will know exactly what the information is, and also who will be responsible if it is not available.
The pack also makes it much quicker to get a mortgage valuation. I know that people are complaining that mortgage lenders will not use home condition reports, but those reports will be far more robust and comprehensive than the valuations and surveys on which mortgage lenders now base their valuations. In practice, mortgage lenders will take home condition reports seriously because they will be based on the work of home inspectors, who will be properly certified.
Hon. Members have made important points about the number of home inspectors, and it is clear that home inspectors need to be in place in time for the commencement of the home information pack system on
Another benefit is that home information packs will be free to first-time buyers. Opposition Members have expressed a sudden interest in the fortunes of first-time buyers. They are suddenly concerned and claim to want to represent and improve the lot of first-time buyers. First-time buyers will get for free the information that they currently have to pay for. Most of us are buyers and sellers, so there will not be that much difference for us, but the new system will make a difference to first-time buyers, because they will get the same information for free.
We will also prevent first-time buyers facing huge bills after the process, as many currently do, because of problems with the property of which they were not aware. That affects many first-time buyers. People may be prevented from taking on debts that they cannot sustain or afford because they did not know something about the property in advance.
Energy performance certificates will also be provided. Mr. Clifton-Brown referred to energy efficiency information. That is extremely important. The new system is a great opportunity to provide people with information about the energy efficiency of a home at the beginning of the process. Opposition Members are supposedly interested in the environment now, too. Is it their official policy to support energy performance certificates? If they do not, many of their warm words on energy—
Is it not the case that those certificates are required under European law anyway and that there is no requirement to have home information packs in order to make them available?
The hon. Gentleman is right. There is no requirement to have a home information pack in the European system, but under the European system we have to bring in energy performance certificates by 2009. Home information packs allow us to introduce them in 2007 and in a cost-effective way. Rather than expecting people to pay separately and additionally for energy performance certificates, we can incorporate them into the home condition report at a much cheaper cost for consumers. Perhaps the hon. Gentleman is saying that he is still in favour of energy performance certificates, although I notice that he did not take the opportunity to say whether his party is in favour of them. Perhaps he needs to clarify his position and tell us whether he believes that the certificates should be paid for separately and additionally, rather than incorporated cost-effectively into a home condition report, as we have advocated.
Opposition Members are right: this is about a transformation in the home buying and selling market. The new system is an important aspect alongside e-conveyancing and provides us with a way of making e-conveyancing more effective. Significantly, it is also about encouraging new entrants into the market and making it more transparent. Hon. Members may be aware that Asda has said that it wants to enter the estate agency market and will provide home information packs for consumers for free. The reason why Asda is saying that it can do so is that estate agents' fees have, in many cases, remained the same. The proportion has remained the same at a time when house prices have doubled, so estate agents have had big increases in the fee that they receive per transaction. Because of the lack of transparency in that area, it is right to encourage new entrants and to promote home information packs as an important part of creating greater transparency.
Hon. Members expressed concern about whether the new system will have an impact on the market. The hon. Member for Bridgwater has quoted the Danish estate agents association as saying that the packs would have a big impact on the market. The man who was chief executive of Denmark's estate agents association until the end of February this year has written to the hon. Gentleman and has copied me into his correspondence. He says:
"I notice that you are quoting me" as saying that
"'there are 25 per cent. fewer houses now on the market as a direct result of HIPs.'"
"May I ask you from where you have got this rubbish?...The number of houses sold in Denmark has gone up all the time since the beginning of the 90s...I can inform you that IBM and Public Affairs Group published a huge report about the Danish HCR-system in January 2006...90 per cent. of the consumers were...pleased with the system and they came up with suggestions on how to make the system even better...I would only be pleased to send the report to you—it's only a couple of hundred pages...in Danish."
I concede that I have not read the report myself, because it is in Danish—
Order. I apologise for interrupting the Minister, but we must move on to the next debate.