Home Information Packs (HIPs) - Mortgage Lenders

Mortgages and the Home Information Pack

The impact of the Home Information Pack (Hip) will be as great on the mortgage lending system as any other part of the industry.

The Home Information Pack provider and Home Inspector will have a duty of care, not only to the vendor and purchaser, but also the purchaser's mortgage lender.

This means that the mortgage lender can rely on the Home Information Pack to make their lending decision. A valuation is the obvious missing element to enable a lending decision as the Home Condition Report specifically excludes value from its content.

It is already the case that mortgage lending decisions are increasingly based upon the borrower's credit rating rather than the exact value of the property used for security. Providing the loan to house value ratio is less than a critical figure that the mortgage company decides, maybe 80%, then they are likely to carry out a desktop valuation without commisioning a surveyor to visit and value.

The Council of Mortgage Lenders points out that approx. 40% of mortgages are for a loan to value ratios of more than 80% and considers a physical inspection in such cirmcumstances will still be required.

Technology has changed radically over the last few years and the Land Registry has finally made its database of property transactions publically available. There's no longer any need to ring the Estate Agent pretending to be a potential purchaser to find out what your neighbour's house sold for, an online valuation is available at the click of a mouse.

There are now a myriad of online home valuation websites offering pretty much the same service. Perhaps the most well known is the hometrack.co.uk site.

Where the mortgage loan to value ratio is a bit tight, then the Council of Mortgage Lenders has intimated that it will be setting up a valuation qualification for Licensed Home Inspectors, so that where necessary, they can complete a valuation report based upon the Home Condition Report, already compiled.

The details of this scheme are not yet available but we will provide further information as soon as it is. We suspect the additional cost of a valuation by a Home Inspector will be relatively low as most of the work involved with a traditional mortgage valuation is establishing the overall condition of the property.

The Council of Mortgage Lenders represents the interests of the UK mortgage lenders and is rightly concerned over the timescale for the implementation of Home Information Packs and its likely impact on the residential market.

They have just (Feb 07) published a further report, "Home Information Pack Update: Towards 1 June

On the whole, we believe the availability of a Home Information Pack is likely to significantly reduce the time taken to make a mortgage offer and hence the time taken to exchange contracts. Even where a valuation is requested by the mortgage company it's likely that this could be turned around in a day rather than the traditional week plus.

We do know that there are likely to be some significant teething problems in the transitional period while new systems are being established and tested.