Housing packs could lead to return of gazumping, say mortgage lenders

The introduction next year of home information packs could distort the housing market, cause confusion among the public and even lead to the return of gazumping, according to the body representing banks and building societies.

In a strongly-worded warning to the government, the Council of Mortgage Lenders said it had "serious concerns" about the whole process, and that the risks of "unwanted and unintended consequences" were increasing. It added that previous government "interventions" in the housing market, such as Nigel Lawson's abolition of double mortgage interest tax relief in 1988, had had a dramatic impact. The CML's comments coincided with new data from two separate sources that indicate the housing market is enjoying a period of renewed buoyancy.

Ministers announced in November that they were pressing ahead with the introduction of home information packs, which are aimed at making the home-buying process less costly and stressful.

Under the scheme, due to start on June 1 2007, anyone selling a home will have to assemble a pack containing detailed information about the house or flat on offer. This pack will include all the necessary legal documentation, plus a "home condition report" which will give the property a numerical rating.

The government estimates that the cost to the average seller will be between £600 and £700, but the property industry believes it could quite easily hit £1,000.

Many in the sector were angry that ministers chose early summer - traditionally the busiest period in the home-buying and selling calendar - as the start date for the packs, and this has been compounded by the fact that the government has still not published a detailed timetable for their implementation.

The Council of Mortgage Lenders' main concern is that the scheme could trigger imbalances in supply and demand, with a glut of sellers trying to offload properties before the start date so they can avoid having to pay for the packs, and then a shortage of homes for sale immediately afterwards. To make matters worse, the organisation believes many would-be buyers will be tempted to wait until after June 1, when they will benefit from the extra information contained in the packs.

"The combined effect of this could be a temporary excess supply of properties, poor market liquidity, difficulties in completing chains and fewer transactions in the months preceding home information pack introduction," said the CML.

It also fears the new regime could lead to up to 400,000 fewer house sales a year if the cost and hassle of assembling the packs ends up deterring "speculative or more tentative sellers" from putting their homes on the market.

Meanwhile, mortgage lenders believe the way the home condition reports will work will lead to people fighting over highly-rated properties and "could even facilitate the return of gazumping".

The Office of the Deputy Prime Minister said the packs had been developed with the strong support of consumer groups, who agreed there were huge benefits to consumers from having proper information at the beginning of the process.

Yesterday, Nationwide building society said the housing market had "got off to a strong start" this year, with January seeing the largest monthly increase in prices for 18 months. It claimed last month's 1.4% rise added £1,228 to the cost of an average home. Figures released by the Bank of England showed that the number of new mortgage approvals for house purchases rose to 122,000 in December - the highest level since May 2004.

Backstory

One million pounds a day is wasted on valuations, legal advice and other costs relating to house sales and purchases that end up falling through, says the government.

That is why ministers are introducing compulsory home information packs on June 1, 2007. They say that by compelling sellers to provide key information about their property up-front, the packs will prevent this waste and significantly cut the number of sales that fall through.

They will include searches and other information which is currently paid for by the buyer, plus a "home condition report," which will be "an objective report on the condition of the property that buyers, sellers and lenders will have a legal right to rely on".