Fidlers Blog

What exactly is a HIP?
OK at it’s simplest and in no more than 3 words a HIP is a Home Information Pack. So to twist that round a bit it’s an information pack about your home. The reason that people are asking about them is that they have gradually become a legal requirement over the last 2 years, so that now, if you’re selling your house then you MUST have a HIP in place before you’re allowed to put it on the market (although as long as you’ve ordered your searches you can still market the property – you don’t have to wait until they come back).

What’s in this pack?
It contains certain information about your home that should be useful to buyers. However you can’t just stick any old information in there – there is a strict list of what must be included. Here’s the list:-
1. Energy Performance Certificate
2. Copy of your title deeds
3. Local Authority Search (this is a list of questions that are answered by the local authority and cover things like who maintains the road outside the property and whether anyone’s applied for planning consent on the property in the past).
4. Water (also called drainage) search (Another list of questions – this time answered by the local water authority – covering things like whether the property drains to a main sewer)
5. Property Information Questionnaire (known as a PIQ) – a form filled out by the seller
6. If it’s leasehold then you’ll also need to put in a copy of your lease
There are also rules about how this is presented – there needs to be an index and a ‘statement of sale’ which sets out the main terms on which you’re selling the property

Who prepares the pack?
Anyone can actually – there’s no restriction on who can do it. However you need to know how to get a copy of the deeds, how to order searches – basically everything in the paragraph above. Because of that you’ll need to use someone who does this sort of stuff for a living – most solicitors can provide it, and there are also a number of HIP providers out there. We would be delighted to give you a quote for your HIP – Click here for a HIP quote

What does the pack look like?
When packs were first introduced there was a massive variety in what they looked like – some looked like a scruffy bundle of papers, and some looked like posh magazines. What’s emerged over the last 2 years though is that people are no longer interested in having a printed version – most HIPs now produced are entirely electronic – so you can access them online and print off a copy yourself. This has a number of advantages – firstly there’s no printing cost, and secondly it’s really really easy to let people have a copy of the HIP – without worrying that they will run off with your only printed copy.

Why have they done this – what was wrong with the old system?
Good question. Home information packs were introduced to kill 2 birds with 1 stone. The Government had been promising for a while to introduce changes to the system of house buying and selling in the UK – the public perception was that it was too slow and caused too much stress as a result (no-one mentioned that conveyancing in this country costs about one tenth of what it costs in mainland Europe but there you go). Sensing a vote winner the government decided that ‘something must be done’. They looked around at various systems throughout the world and decided that the idea of preparing a pack in advance was the best one to go for. This system has been in use in Canada and Denmark for a while and seems to have been successful.
The second bird being killed was the Kyoto protocol. The government signed up to this which involved them agreeing to reduce emissions by a certain date. Now in order to reduce emissions you first have to measure them – otherwise how can you say that you’ve reduced them? So a major part of the HIP requirement is the energy performance certificate – which records how energy efficient your property is.
By introducing a Home Information Pack they hoped that it would simultaneously reduce the time taken for conveyancing, and at the same time gather important information about the UK’s housing stock.

Has it worked then?
Well yes and no. There were clear ideas at the start which would in theory have produced a system whereby everything you needed to know about the property was held in one pack that was available when you saw the property. A major part of this was the Home Condition Report. This was basically like a full survey on the property which highlighted the things that needed to be done. In an ideal world you’d get your pack, let your solicitor have a copy, let the mortgage company see the survey, and you’d be ready to exchange contracts within a week (or however long it took the mortgage company to get the mortgage offer out). Sounds nice doesn’t it? Yes that’s what we thought too. However the Mortgage companies didn’t seem to think so and nor did the Royal Institute of Chartered Surveyors (RICS). The Mortgage companies basically said it was all well and good but as there was no element of valuation in the Home Condition Report how could they rely on it to lend a mortgage against? They therefore were going to send their own valuers in as well. Eventually there was a climb-down by the government who agreed that the Home Condition Report would be optional (which in reality means almost no-one ever does one) but the Energy Performance Certificate would be compulsory.
RICS weren’t happy because all their members were basically having to retrain as Home Inspectors, when they’d spent years and years building up their expertise in the area. I can see both sides on this – it’s a bit of a blow to the pride to retrain when you’re so experienced. However the reason they were being asked to retrain wasn’t that they weren’t any good – it was that the most important thing was consistency – you needed to be able to send 10 Home Inspectors into the same property and they would come up with the same 6 points that needed sorting. Without blanket retraining that wouldn’t have been possible.
So what did the RICS do? Well with a couple of weeks to go to the launch date they basically took the government to court saying there wouldn’t be enough home inspectors ready by the proposed launch date. A compromise was agreed that meant that the launch would only be limited to properties with 4 or more bedrooms – other properties would be brought into the system later in the year.

I only wanted to know if it worked or not – I didn’t want war and peace
Yes I’m sorry – I seem to have gone on a bit there. OK well to cut to the chase on this – it should have meant that you’d have a pack which would let you exchange contracts very quickly (which is good). In reality we’ve got something that’s watered down and that few people actually look at. Introducing the PIQ is a good first step towards making it useful.

Are they any use at all then?
Well yes they are – just having the searches and a copy of the deeds up front saves a fair bit of time. Earlier this year (April 6th 2009 to be precise) another change was introduced whereby the sellers have to fill out a Property Information Questionnaire as well. This contains some useful information about the property. However, buyers solicitors will also want other information to be filled out by the seller – so they end up filling out 2 sets of questionnaire. Yes it is stupid and no I don’t know why they weren’t all put into one questionnaire. Hopefully in time the two will be merged so the PIQ starts to become useful.
There are also moves afoot to introduce the ‘exchange-ready HIP’ – which is meant to accomplish the original goals of the HIP – it’s meant to do what it says on the tin. We’re currently taking part in trials of this, as anything that can be done to reduce the time taken for conveyancing is good from our point of view.

Aren’t the Tories going to scrap them?
We don’t know but they are making noises in that direction. This is a pity because although when they were being introduced many people were saying they were a stupid idea, when you actually spoke to them what they actually meant was this is a stupid way of implementing a great idea. Everyone seemed to agree that the idea of producing everything up front was a good idea but each part of the industry (surveyors, estate agents, solicitors etc) all had their own idea on the best way to go about it.
So if the Tories do decide to scrap it they may find they’re walking into a political hot potato (how’s about that for a mixed metaphor!) – it would be better to evolve the existing system to make it deliver on the promises originally made. Taking us back to a system of letting the buyer gather all the information after the sale has been agreed seems incredible – you’d be introducing legislation that slows down the conveyancing system.
The other thing to bear in mind is that there is now a whole industry that has built up on the back of HIPs – Solicitors have employed staff to do the work – there are many many HIP providers who all employ staff just for this work, and finally there are thousands of independent Domestic Energy Assessors (the people who do the Energy Performance certificates) who have retrained to create a new career for themselves (they can’t actually do away with the Energy performance Certificates as we still need to comply with the Kyoto protocol).
Getting rid of all that infrastructure doesn’t make any sense – but in our previous dealings with the government that doesn’t seem to have stopped anyone before.

I’m confused – can we have a summary?
Ok – it started out as a good idea that everyone agreed on. They then argued about the best way to introduce it and a watered down version was phased in. It’s not great but it’s better than nothing. The system is evolving (introducing the PIQ was a good first step), and eventually may become what was originally hoped for – something that makes house buying and selling quicker and less stressful. But then again it may not – no-one knows.

I hope this guide helps, but if you’ve got any questions about it then please do so by adding comments below

Cheers

Mark

Moving house is one of those things that causes incredible upheaval in your life. If you’re thinking of moving it’s a good idea to get it clear in your mind – before you start – what you’re going to have to do, and in what order. This can help to reduce some of the stress later on.

We sometimes get calls from clients who’ve seen a house they’ve fallen in love with and want to go ahead and buy it when they haven’t sold their own house and they can’t afford to do this. These people sometimes talk about taking on bridging loans (to allow them to own two properties at once) – this is very risky, very stressful, and can all too easily end in tears.

So this guide is designed to give you an overview of what you should do and in what order. These ‘Sladey top tips’ are aimed at people who are selling and buying – for first time buyers I’ll do a separate guide.

Overview

Here’s an overview of the order in which ideally you should be doing things

Step 1 – What can you afford?

Step 2 – Do you want to Move? (and some cautious looking around)

Step 3 – Sell your house

Step 4 – Look for one to buy

Step 1 – What can you afford?
So you’re thinking of moving house – what next? Well the first thing is to find out what you can afford – there’s no point in looking at Madonna’s old place when you won’t even be able to afford the heating bills.

Generally, what you can afford, will be made up of the following:-

1. How much money you’ve got in your existing house (so if you sell it and pay off the mortgage, how much money you’ve got left over) – this is known as the equity in your house
2. How much money you’ve got saved up – if you want to use those savings on the new house
3. How much money you are going to borrow on a mortgage.

There are two main unknowns here – firstly how much money you’ve got in your existing house (because you don’t know how much your house is worth), and secondly how much money you can borrow on the mortgage (because you don’t know how much a bank or building society will lend to you).

1. How much money you’ve got in your existing house
The best way to find this out is to get a valuation of your house carried out by an estate agent. They will still generally give you a free market appraisal type valuation – i.e. what they think you’ll be able to get if you sell your house now. Obviously this is only their opinion but they should have a better idea than most of how much your house will sell.

If you don’t feel like getting an Estate Agent into your house then you can also do your homework yourself online – there are a number of sites where you can tell how much properties sold for. Two I’ve used are http://www.nethouseprices.com/ and http://www.houseprices.co.uk/ – they both get their data directly from the Land Registry (the amount that people paid for their property is now public information that anyone can look at). Don’t forget if you’re looking at these sites it’s just raw information – you have to look at the actual properties sold as well and decide if they are worth more or less than your home. You also have to consider when they were sold – property prices were on the rise for so many years, but fell back during 2008. In our experience they’ve now bottomed out, so it’s a very good time to buy, as chances are they’ll never be this cheap again.

Knowing how much your house is worth is only part of the equation – most people have a mortgage on their property and you need to take into account how much it will cost to pay this off. You should try and get hold of your most recent annual statement from your mortgage company (they send this to you each year and it shows how much you owe on the mortgage). You also need to bear in mind if you’re still in any ‘special rate’ periods. This normally affects you if you’ve had a mortgage in the past on a special rate – e.g. 1% over base or a fixed rate. In order to give you this special deal the mortgage company usually stick in a penalty clause – so that if you pay the mortgage off within a certain period of time you’ll have to pay a penalty. The details of how much you have to pay will be on the original loan documents that you signed when you took the mortgage out (if you can’t find these then you might be able to get a copy from the solicitor who acted when you mortgaged, or by contacting the mortgage company themselves).

These penalty payments can be a nasty surprise if you’ve forgotten about them – they usually run into the thousands. If you’re near the end of the penalty period it’s usually worth waiting until it’s run out before you pay the mortgage off – in such cases paying your mortgage off just one day early can cost you thousands of pounds.

So from getting a value on your house and working out how much to pay off your mortgage you’ll be able to work out the equity you’ve got in your house (i.e. how much money you’ve got tied up in it)

2. Money you’ve got saved up
You presumably know this already – if you don’t then maybe you’ve got a bit too much!

3. Money you can borrow on a mortgage
Again this is something you’re not going to know off the top of your head. The mortgage market has been in massive turmoil since the start of the banking crisis and it’s a completely different world to just a couple of years ago. However, contrary to what the papers might say, the banks and building societies ARE lending mortgages – they’ve got to as it’s a major source of income for them. The important thing here is not to listen to the newspapers or the people down the pub – check out the reality for yourself.

For this I’d recommend you speak to an Independent Financial Adviser who checks the whole of the market (i.e. not tied to any one lender) – they should be able to tell you how much you can borrow, and on what terms. With the interest rates at an all time low at the moment money has never been so cheap to borrow. People have moaned that the banks are no longer being so competitive over the rates they offer compared to the bank of England base rate, but the actual rate you’ll pay at the moment is generally the cheapest it’s ever been. For which IFA to choose (and more financial information) I’d recommend checking out Martin Lewis website www.moneysavingexpert.com – we’ve no affiliation to him at all but there’s good advice on the site.

After speaking to an IFA you should have a good idea of how much money you’d be able to borrow.

The amount you can borrow is normally linked to how much you’re earning, and how big a percentage of the purchase price you want to borrow – usually the better deals are saved for people who are borrowing now more than 75% of the purchase price. You can get mortgages up to 95% now – they might not be on such a good deal, but don’t forget this will probably still be a lot cheaper than it was 2 years ago – just because the Bank of England base rate is so low.

After you’ve done all this homework you should have a clear idea of what you can afford.

Step 2 – Do you really want to move house?
This might seem a daft question to ask but it’s important to give it some consideration at this stage. We have had clients who get up to the final stages and pull out because actually they didn’t really want to move. This causes headaches for everyone involved.

This used to be made worse because Estate Agents often used to run a ‘no sale no fee’ policy, partly with the aim of encouraging people to put their properties on the market which then encourages them to move when people start making offers! This really encouraged speculative sellers who are sort of swept up into selling their properties on the basis of “what do they have to lose?” However these are often the sort of people who would pull out at the last minute when they realise it’s not actually what they want.

This has all changed with the introduction of HIPs – Home Information Packs. It’s now the law that before you put your house on the market you have to have a HIP in place. HIPs generally cost between £300 and £500, and do not operate on a ‘no sale, no fee’ basis – you’re going to have to pay for the HIP even if you take your property off the market.

So if you’re selling you’ll have to put your hand in your pocket and pay for the HIP (there may be an option to pay over a period of time but sooner or later you’ll have to pay for it). The upside is that when you’re buying you’ll be buying off people who are serious about it (so less likely to pull out at later in the transaction), and also that they will have done a couple of the searches that you need to have done (the Local Authority and Water searches) – so you won’t have to pay for them again.

To help you decide if you want to move it might be an idea to look round and see what’s out there. This is a bit of a double-edged sword though – it’s sod’s law that if you look now you find the house of your dreams, and you can’t go ahead and buy it. Just looking around though might make you appreciate that there are a number of houses out there that would suit you – it can help you make that decision to move.

Step 3 – Sell Your House
So if you are serious about selling your house then the next thing to do would be to put it on the market. For this I would recommend using an Estate Agent. Estate Agents may not have a great public image, but in the UK I think they do provide a valuable service. I moved house in 2004, and the advice of my agent was really useful. I already knew what the house was worth but my agent advised I advertise it at a slightly lower price, stating that I wanted ‘offers over’ this amount. This created a bidding war which meant I got quite a bit more for the house than I was expecting. I would never have thought of this myself. This isn’t appropriate in some markets (the market’s nothing like 2004 at the moment so it’s probably not appropriate), but they should be able to give you good advice which could save you money.

The other thing is that British people tend not to be comfortable haggling – and this is another area where the Estate Agent comes in handy – as a go-between. If you’re buying though make sure you remember the Estate Agent is acting for the seller – not you. If you’re selling make sure your Agent is looking after you.

How to choose an Estate Agent? I would still say personal recommendation counts for a lot – try and speak to people who are selling and ask what sort of service they are getting. Also see who’s got a lot of boards up in your area – this could be an indication they’ve got a good name in the area.

Once you have the house on the market you’ll hopefully get viewings and offers on it. During this period it is a good idea to cautiously start looking to see where you want to move to. Again you can’t commit to any new house at this stage because you haven’t sold your own property. This is not unusual – most other people looking round will be in the same position. You may even find the house you want, and make an offer on it. Sometimes the seller will accept your offer – sometimes they’ll tell you to come back when you’ve sold your own. This is a fair thing to do because until you’ve sold your own house you really cannot go ahead with the new one (unless you get a ‘bridging loan’ which I would avoid like the plague).

I would recommend you instruct your solicitor on the sale at this point – before you’ve got a buyer. Your solicitor can then get a copy of the deeds ready, and get you to fill out property information forms so that when you do find a buyer you can move ahead quickly.

Eventually you’ll agree to sell your house. Again this should be to someone who is either a first time buyer or has a completed chain beneath them (i.e. everyone in the chain has definitely sold their property) – so none of them are still waiting to sell. A chain of transactions can only move at the pace of the slowest link in the chain – so if someone hasn’t sold yet then none of you can go ahead.

Step 4 – Look for a property to buy
So now you’ve sold your house – this is where things get exciting/stressful! If you’ve already found somewhere to buy you can now go to them and make a firm offer to them. You’re now in a stronger position, and may feel you want to negotiate more on the price (for example if you’ve dropped the price on your own to sell it, then you might want to recover this by reducing your offer on the one you’re buying).

If you haven’t found one yet then you need to get looking NOW! If you take too long to find one to buy then potentially your own buyer could pull out and go elsewhere (if it came down to this you could always move out into temporary accommodation and put your furniture into storage rather than lose the sale. This causes a lot of upheaval but at very slow times it can be a good idea).

The plus side is that now you’ve sold you are VERY attractive to people selling their house – this can allow you to negotiate harder on the price.

Once you’ve struck a deal then you should instruct your solicitor on the purchase as well. We’re then into conveyancing (I’ve put some beginners guides to conveyancing on the main website)

What’s the point of all this?
The hard thing about all this is tying everything together. You can find the house of your dreams, but not have sold your own; on the other hand you may sell yours really quickly but not be able to find somewhere else to buy. While you’re doing all this you’ll be meeting weird and wonderful people in all sorts of different situations who are moving for all sorts of different reasons.

If you do things in the order I’ve stated then I’m afraid it will probably still be a stressful experience, but it might be a bit less stressful than the alternatives. For example you find the house of your dreams and lose it because you haven’t even started to sell your own, or you can’t afford it because you haven’t done your sums, or you get way down the line and finally realise that what you really want is to stay where you are and buy a boat.

Reaction from others:-
Funnily enough when we last moved the thing that took me by surprise was the reaction of others. Telling people that you’re moving seemed to make people question whether they themselves should be moving, which in turn provoked some surprising reactions. A couple of people became quite defensive about the value we’d placed on our house saying it must be worth a lot more than that (translation= “if your house is only worth that much maybe mine isn’t worth as much as I thought”). Moving house is one of the great upheavals in life, and I can only assume that being presented with someone who’s going through it makes people question whether they should be thinking about it as well. Anyway, what do I know?

Hope this article is useful – please feel free to comment or ask questions below

Cheers

Mark

If I had to pick one area in conveyancing where people have wasted hours talking at cross-purposes then it would be about the word ‘Deposit’. When a buyer walks into a solicitors office they are absolutely clear what the word means. The solicitor in turn is also absolutely clear what the word means. The only problem is that they are each thinking different things. This guide is meant to de-mystify the word Deposit and hopefully avoid misunderstanding.

So there are 2 ways of looking at a Deposit – the ‘Normal’ way and the ‘Legal’ way. Here’s how they differ:-

The ‘Normal’ meaning of a conveyancing Deposit
If you’re purchasing a property and you are a human being (as opposed to a solicitor), then when you say the word ‘deposit’ in relation to purchasing a house you usually mean the amount of money you yourself are putting down (as opposed to the amount that you are borrowing on a mortgage). So if you’re borrowing 60% of the purchase price on a mortgage then you in turn are going to put down a deposit of 40%. That’s what most people mean when they first walk into an estate agents or solicitors office and people start having a conversation about deposits

The ‘Legal’ meaning of a conveyancing Deposit
OK here’s the science bit. As solicitors are involved you can trust us to do things a bit differently. In the conveyancing process there is a clear and definite meaning to the word deposit. To explain this you have to firstly know a bit about the house purchasing, or conveyancing, process. Conveyancing takes place in two main parts – before contracts have been exchanged, and after contracts have been exchanged.

Before contracts have been exchanged:-
up until the nanosecond that contracts are exchanged, either party can pull out of the transaction, with no comeback. You can have been in negotiations for months and months, and be all ready to exchange contracts. You might even have agreed you’re going to move in the following week. Even thought everything is gearing up to it all moving ahead, at this stage, if the other party change their mind then there’s nothing you can do about it.

After contracts have been exchanged:-
Everything changes with exchange of contracts. From that moment on you are bound to buy the property, and the seller is bound to sell the property, at the price that is set out in the contract. This all has to happen on the date entered in the contract for completion (the completion date). Once contracts have been exchanged then if one party pulls out the other party can sue them for damages.

I told you the science bit was coming didn’t I, well here it is. When you exchange contract you have to hand over some money as an indication that you are serious about purchasing it. The money that you hand over is what solicitors call the deposit. Usually this is meant to be 10% of the purchase price. Over the last 25 years however it became normal for sellers to allow the buyers to pay over a reduced deposit (usually because the buyer was having a 95% or 100% mortgage – so they just didn’t have 10% lying around). Even if the seller agrees to accept a reduced deposit, if the buyer then pulls out of the transaction they are liable to lose the full 10%. So if they’ve only paid over 5% then they pull out the seller can keep that 5% and sue the buyer for the other 5%.

So imagine you’re purchasing a property for £100,000, and you’re having a £70,000 mortgage to help you. Your understanding of the deposit would be that it’s £30,000 – that’s the amount you’re putting down on the property. The solicitors understanding of the deposit is that it will probably be 10% of the purchase price (£10,000).

It might sound like I’m labouring a simple point here, but the problem often crops up because both the buyer and the solicitor walk to each other with a clear understanding with what they mean by the deposit – but both meanings are different.

What about a chain of transactions – what happens then?
So what happens if you have a chain of transactions – i.e. A is selling to B who’s selling to C who’s selling to D. In theory each buyer would take the deposit coming in on their sale and have to make it up to 10% before passing it over on their purchase. That is actually the correct situation and some sellers will insist on this (and they are perfectly entitled to). The normal course of events however is that whatever deposit is handed over at the bottom of the chain (i.e. by the first time buyer) is then passed up the chain, so the people in the middle of the chain don’t have to find anything extra for their deposit.

Holding deposits – paid to the Estate Agent
Sometimes Estate Agents may ask for a small deposit to ‘hold’ the property for you, or as an expression of goodwill. BEWARE! Handing over of a deposit at this stage does not bind the seller to sell to you at all. They can sell elsewhere and you can do nothing about it. Even though our advice would be not to do this, you may still want to do it (if it’s not a large amount) because you are wanting to keep the estate agent sweet. However it is generally only the estate agent who would benefit from this by having the holding deposit money in their bank account, earning them interest. You should be able to get your deposit money back from the estate agent if it all falls through, but if you haven’t handed it over in the first place then you won’t need to worry about getting it back will you?

Giving a ‘holding’ deposit direct to the seller
No no no no no no NO! We have had clients that have done this (years ago now) – they have fallen in love with a house and in an effort to convince the seller that they are deadly serious about it they have given them tens of thousands of pounds in cash. This is about as risky as you can get. The seller can take your money and spend it on a new car, and then sell the property to someone else. In these circumstances you could sue the seller for your money, but that’s never ever ever as good as holding onto the money in the first place. As an example the seller could clear off massive gambling debts with your money – when you sue them they own nothing and the house is in negative equity. You’ll get nothing, apart from a legal bill when you try and get your money back.

I’m painting a black picture here but it’s important that you understand the risks involved. NEVER give a deposit direct to the seller. As a final reason not to do it, handing a deposit direct to the seller is a recognised warning sign under money laundering regulations – which could in turn trigger you being reported for suspected money laundering.

I hope this clears a few things up – if you’ve got any questions about it then post a comment and I’ll try and answer it

Cheers

Mark

I’ve just been watching the BBC’s ‘property watch‘ program which I understand is on every night this week. I dread watching stuff like this because I normally find when I watch programs about things I know it winds you up when you hear the rubbish that they sometimes come out with.

For some time now I’ve been seeing the rise of blogging – starting as something that geeks, teenagers, and political activists did. HOwever it now seems to be getting more widespread and I thought it was time to dip my toe into the water

I have actually been blogging before but it’s just been internal stuff within Fidler & Pepper to keep everyone up to date with how things are going in the firm.