GMAC urges HIPs trial rethink

Amanda Jarvis

April 11, 2006

Stephen Knight, chairman of GMAC-RFC, said: “The HIPs ‘dry run’, announced by the Government last week, has surely got to be ‘paid for’ so that any impact on the property market can be properly assessed.”

GMAC-RFC has serious concerns that HIPs may cause a similar, serious ‘jolt’ to the mortgage market as was seen with the removal of double MIRAS in 1988. If this was the case, the company believe HIPs could affect the house buying market for years to come.

Knight continued: “We believe that this important new measure has been under-researched and, as a result, the potential impact of HIPs has been underestimated. We applaud the government for trying to protect house buyers from wasting money on failed property transactions but we are concerned that no-one has fully assessed the potential effect this compulsory ‘tax’ could have on the UK property market.”

GMAC-RFC believes that the dynamics fuelling the UK’s unique property market are such that further costs, in addition to those already borne by the buyer, could cause the market to overheat during the first half of 2007, and then cool off dramatically. 

GMAC-RFC also believes that a £600 – £700 ‘tax’ for putting a property onto the market could cause a significant reduction in the flow of second-hand properties in the future.

Knight said: “A property move in the UK is often triggered by vendors testing the water. When they receive an offer they then understand what they can afford to buy. A chain is created. HIPs could prove to be giant ‘roadblock’ to this process.”

These concerns have since been backed up by recent research carried out by the National Association of Estate Agents (NAEA) in March. It revealed that 73 per cent of UK homeowners would think twice about marketing their home for sale as a result of the cost and delay caused by HIPs.

Stifle lender competition
GMAC-RFC also believes that HIPs could distort lender competition. It anticipates that many lenders will offer to refund the cost of HIPs to existing borrowers who are purchasing another property, as long as they use that particular lender to finance the next purchase. It has concerns that this practice could favour lenders with large market share resulting in reduced competition, in turn discouraging borrowers to shop around.

Survey duplication
In addition, GMAC-RFC sees potential for duplication on surveys for property purchase. It believes that the government has failed to test the acceptance of Home Condition Reports from buyers. 

Knight concluded: “There is a significant chance that buyers and possibly lenders will view the validity of surveys and legal work commissioned by vendors with cynicism leading to duplication and adding yet another layer of cost to the whole house buyer process.

“There are many issues surrounding the introduction of HIPs that need ironing out. The government needs to make any HIPs trial relevant so that lessons can be learned and changes made where appropriate, to reduce the negative impact on homeowners and buyers.”

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