More evidence of HIPs fiasco - don't get the best mortgage

Posted on 28 August 2007 by Ray Boulger

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The revelation last week that 2 major mortgage lenders, Barclays Woolwich and HSBC, will only accept the personal search that most HIP providers supply on condition that the solicitor acting for them guarantees it, would not have come as a surprise to Housing Minister, Yvette Cooper, if she had genuinely consulted with interested parties about HIPs, rather than ignoring nearly all the advice she received from industry professionals who know a lot more about how the housing market works than she does.

Gordon Brown was rumoured to have seen the light on HIPs, at least in so far as they are a political liability, and so when he became Prime Minister 2 months ago I expected him to move Yvette Cooper on the basis that it would be much easier for a new Housing Minister to axe to HIPs. However, I was wrong and the Government now stumbles from one crisis to another with the discredited packs.

Most HIP providers use personal searches, rather than wait for a local authority search, for two main reasons, time and money. Local authority searches cost between about £75 and £230, depending on the local authority, whereas a personal search costs around £80, regardless of the area. Secondly, personal searches can be obtained very quickly, with some search agents transmitting the information back to base electronically. If a search agent is inefficient the HIP provider can sack them and choose another. However, if a HIP provider orders a local authority search and the local authority is inefficient, and some are so bad that they take 6 weeks to supply searches, they just have to wait, and wait, and wait.

It is therefore a no brainer for HIP providers to use personal searches, at least unless and until the Government requires local authorities to meet acceptable service standards for the delivery of searches. Even if that happened (and pigs don't normally fly) the cost advantage of a personal search would probably still mean that most HIP providers continued to use them. Providing a HIP is in reality still optional, and will be even after 10 September when vendors who put a property on the market with vacant possession and advertise it as having at least 3 bedrooms will need one. After 10 September we may see a lot more properties advertised as having 2 bedrooms and 1 or more HIP replacement rooms. 

Most vendors who decide to provide a HIP recognise that most potential buyers put very little value on them, including the Energy Performance Certificate, except as a negotiating tool on the price. Therefore it is obvious that most vendors’ prime requirement will be to obtain a HIP as cheaply as possible, subject to it not including inaccurate negative information on the property. As most HIPs will be commissioned by the estate agent, sometimes on a no sale no fee basis, their interest will be exactly the same as the vendor.  Even if a vendor is aware of the potential issue with personal searches for their buyer they are not going to waste any more money than they are legally required to by insisting on a local authority search, or risk that it will not be produced by the local authority within the one month allowed by the Government.

The response of some HIP apologists to the reports that some solicitors will not guarantee the personal searches in a HIP, and some lenders will not accept them otherwise, is to say the purchaser should boycott such solicitors and lenders. This is very bad advice as far as the mortgage is concerned. If a borrower has to choose the second best lender, or third best, or fourth best, etc, going down the list until they find a lender who will accept a personal search, the extra they will pay on the mortgage will probably exceed the cost of paying for another search.

Also, I wonder what the FSA would say to an independent or whole of market broker who recommended a lender on the basis they that they weren’t the best for that client, but at least they would accept a personal search! Perhaps we will see a new marketing slogan from brokers who prefer to give their clients a worse choice by only using a panel of lenders - "We only use lenders who accept personal searches - pity this may mean we can't offer you the best mortgage!"

Category: HIPs, Property market

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