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I open the 21st meeting in 2005 of the Communities Committee. I remind all those present that mobile phones should be turned off.
What lessons have been learned or information gleaned from the Arneil Johnston report? I refer you to section 2.2 of your briefing paper, on the evaluation of the single survey, where you state:
I will leave Neil Ferguson to answer that question.
The conclusions reached in that report were the conclusions of the researchers. The research has not been commented on specifically by either the purchasers information advisory group or the Executive.
Which researchers?
Those employed by Arneil Johnston.
If that was their conclusion, why is it not in the report?
It certainly was. I am not sure that I can find it right now, but I will look for it.
I certainly did not find it.
There was engagement over the summer when we had three further meetings of our purchasers information advisory group to clarify its remit and to consider the purchasers information pack, the evaluation of the single survey pilot and the development of a mandatory single survey scheme.
Given the Arneil Johnston report, which is highly critical and damning, have you made any changes to the single survey or to your approach?
We do not accept that the report is damning. We acknowledge that the single survey pilot produced only a small sample of surveys on which to base information and that the researchers obtained an even smaller number of surveys that gave rise to information on the reactions of buyers and sellers. We fully acknowledge that we cannot place too much weight on the pilot. However, I would not characterise the report as being highly critical. The researchers did a good job of getting qualitative rather than quantitative information from discussions with people who took part. They drew conclusions about the effect of the survey on the house buying and selling process that we will take into account, but we do not expect to make any radical change to the overall approach in the light of the single survey pilot.
I agree that the research was excellent. In fact, it is an accurate reflection of many stakeholders' serious concerns about the single survey. I would not like you to think that my view on the contents applies to people's abilities, because the research is excellent.
We were quoting the housing improvement task force, which went into the issue in great detail and concluded that it would be difficult to have a fair system if potential purchasers could ask for detailed interpretation of points in the survey and that information was provided to them but was not shared with other purchasers. In light of the potential difficulties, the housing improvement task force concluded that that would not be possible in the system.
During the pilot, sellers were given a copy of the report and were able to correct errors of fact within it. If the report said that there were three bedrooms when there were only two, that was corrected; it was not the case that what was stated in the report was the end of the matter—such matters could be corrected to provide clarity. However, when the report was produced and issued in its final form, it stood as the report. There is limited evidence, but I understand that during the pilot there were not many queries of surveyors from prospective purchasers.
On the level of detail in the single survey and categories 1, 2 and 3 for repairs, if someone wants to purchase a property, it is important that they know what the repair and maintenance schedule is likely to be. If potential purchasers are not given full information and are not able to discuss points with a surveyor, is it not more likely, given the cost of houses in Scotland, that they will pay for a survey of their own? The single survey might not be sufficient for a buyer and might not address the problem of multiple surveys, as purchasers will want a survey to be done by a surveyor with whom they can discuss all the issues.
There are two questions there.
Yes. That is intentional.
I will deal with the first one. When the mandatory single survey comes in we will move from a situation in which most buyers rely on a valuation report alone to one in which they all receive the equivalent of a home buyer survey under the current scheme. Buyers will get far more information than most do now.
On a general point, you have responded to our stage 1 committee report on the Housing (Scotland) Bill, but not to the Arneil Johnston evaluation of the single survey project. The conclusion of that report says:
I will let Neil Ferguson answer that question in a moment. I have to say that we do not accept that the report is critical.
Oh, come on—
Behind the point about positive influence that you raised lies the report's conclusion that
We will have to agree to differ on that point.
I remind members that as we are questioning Scottish Executive officials we should restrict our questions to policy matters. We cannot stray into the politics of the issue; the minister is accountable in that respect.
I have a couple of supplementaries on the single survey report. First, I should say that I associate myself with Mary Scanlon's comments on the Arneil Johnston report. It was my understanding—
Ms Grahame, this is not about people making speeches or putting their views on the record but about putting questions to Executive officials. If you have no questions on the pilot steering group, I ask Cathie Craigie to begin her line of questioning.
No, I think that I will move on to—
In that case, Mrs Craigie will first ask questions on the single survey report.
The briefing paper attached to David Rogers's letter dated 8 September says that
We used the word "expects" because we did not want to pre-empt the outcome of our consultation process with stakeholders on the final scheme's design. In the light of those discussions, we feel that the survey report should include a valuation and information on a property's condition, energy efficiency and accessibility. I suppose that our expectation in that respect is very strong.
The Arneil Johnston report recommended one or two minor amendments to the structure, or at least the content, of the purchasers report, which is what we expected would happen.
From the evidence that the committee took and the committee's report, you will know that concerns were raised about the shelf-life of the valuation. Page 14 of the Executive's briefing paper takes us through how the HITF arrived at its decision in favour of the first option that it considered—a single survey with a valuation, which it preferred because of its simplicity.
Yes. Along with the purchasers information advisory group, we re-examined the inclusion of a valuation and the shelf-life of the rest of the survey. Our conclusion is shown in our paper and reflects the consensus among the members of the advisory group about what would be needed to make the system work. We agreed that there should be no specific shelf-life for any of the information; that the information would be required to be of recent vintage; and that the valuation should be less than three months old, which would give people a chance to put right any glaringly obvious repairs before they sell the house.
Will you say a bit more about the mechanisms that will be in place to update the information? How would damage to a property by freak weather be dealt with?
In essence, it would be dealt with in the same manner as it is dealt with now. At present, there is a period between the survey being carried out and the purchaser moving into the property. Anything could happen to the property in between—there could be a storm or the levees could break—but the survey would remain as it was. Surveyors would probably tell you that the existing shelf-life of surveys is simply the date of inspection. A surveyor cannot be held liable for something that happens following the inspection. Exactly the same infrastructure around the survey would be in place; the position would be no different.
An energy efficiency report is also to be included in the survey. How would a seller go about getting that done? I agree that it would be helpful, but are there enough qualified people out there for that to be achieved?
In the pilot, surveyors were trained specifically to carry out energy efficiency inspections as part of the single survey inspection. As a result of a European Union directive, there will be a requirement on sellers of properties to get an energy efficiency report. The work on that in relation to all types of property is being done by the Scottish Building Standards Agency, with which we have been working to arrange for the single survey to be the delivery mechanism for sellers of marketed properties. The intention is that rather than have someone else come to inspect the property for the energy efficiency report, the surveyor will be able to do that as part of the inspection for the single survey. During the pilot, such data were gathered and put on a website that generated an energy efficiency report, which was in turn embedded in the single survey report. As far as the seller was concerned, there was one inspection and one report, of which the energy efficiency report was part. We will have to ensure that all surveyors are appropriately trained and qualified, but we do not expect that to be a problem.
I move on to hidden defects insurance. I am sure that you are aware of the evidence that the committee took before it compiled its stage 1 report, and there seemed to be general support out there for hidden defects insurance. I know of constituents who have felt let down by surveyors when they have found defects in properties weeks after moving in, so I can see the attraction of the insurance and the protection that it would give purchasers. The Executive has said that, given the additional costs involved and the limited availability of the insurance, it proposes not to stipulate that hidden defects insurance must be provided, but instead to leave it to the market. Is it good enough to leave it there? Should we not stipulate that hidden defects insurance should be introduced?
A number of issues lead us to conclude that we are not in a position to stipulate that. First, the housing improvement task force had concerns about the potential additional cost of the survey fee. The RICS is working with its colleagues in London to try to work out what the additional fee might be. Although the analysis is not complete, early indications suggest that the extra cost for hidden defects insurance alone might be £100 per survey, which is a fairly hefty proportion of the overall fee. Balancing the cost of hidden defects insurance with its usefulness and the number of times that it would be drawn upon is a factor.
So, from the information that you have and the research that you have conducted, you are not in a position to say that if the market was left to its own devices, the practice would become widespread.
We cannot give that guarantee. We hope that hidden defects insurance will be adopted, which will put us in a better position to encourage surveyors to provide it and buyers and sellers to seek it out when they consider getting hold of a survey. However, we cannot give a guarantee at this stage. As we find out more information, from surveyors in particular, developments might occur, but we are not in that position yet.
Section 104 of the Scotland Act 1998 requires the Executive and the United Kingdom Government to reach agreement on the legal liability that will arise from the single seller survey. Are you confident that that agreement can be reached by the time the scheme is introduced?
The UK Government has already agreed in principle to make the necessary provision, which would be consequential on the Scottish provisions. An order under section 104 of the 1998 act would make provision on reserved matters in consequence of Scottish legislation on devolved matters. The agreement is in principle, but the UK Government will have to examine the fine detail—that is why I give the qualification "in principle". However, we are confident that agreement will be reached. The order would reflect the position that has been put in place for the equivalent English system, so we have no reason to believe that the UK Government would go back on that.
In the paperwork that you supplied, you reminded us that the Executive is considering whether a central register of surveys—similar to that proposed in England and Wales—will be needed. A view on that has not been reached. Would a register work? Have there been any other thoughts about whether we should include one?
We discussed that issue at some length with the stakeholder advisory group. It is fair to say that there is a spectrum of opinion on whether such a system is necessary. The proposals to introduce it in England would, in effect, set up a new profession to undertake home inspections. Such a register would facilitate quality-control checking. Another potential issue is of sellers shopping around for a survey that suits them. Those are the main drivers behind the English proposal.
Have you any idea how much it would cost to maintain such a system?
We cannot speculate. We know that in England the cost ran into several million pounds. Perhaps my colleagues have figures.
The initial proposal was for several million pounds, but the Office of the Deputy Prime Minister was looking at different ways of delivering the system. At the moment, we do not even have a firm estimate for what is being considered down south, as the proposal has changed. We cannot say what the figure for Scotland might be.
Who would pay?
At the moment, the proposal is that the UK Government will look to the industry to come up with solutions. Those solutions would be registration schemes for home inspectors. One of the registration certification schemes should own a database on which all the home inspection reports would be registered. The system in England looks to be quite bureaucratic, but it is driven by the industry and the cost would be for the industry to bear.
I have a few supplementary questions. My first is about the shelf-life of a survey. Imagine that I am a seller and that I had my single seller survey done in March 2005 ready to put my property on the market. Two months later, a prospective purchaser is beginning to nibble, but by then we are probably into the time when prices go up. We are getting into the summer, when the market is much better than it is in March. You said something about an add-on to the single seller survey—a review or a refresh. How would that operate? As a seller, I am not happy that two months have passed and that I am stuck with the valuation, notwithstanding the condition of my property at that time.
All that the bill requires is that you have a survey and a valuation done and that you provide them to potential purchasers. I would expect the valuation and survey to influence your decision on the asking price and the upset price and to inform decisions by the potential purchasers. Both parties will be aware of movements in the market.
Why put a valuation on the property when the market will decide two months later? The Arneil Johnston report states:
The valuation was deemed to be necessary by virtually everybody around the advisory group table for reasons that relate to two of the objectives of the single survey. The first objective is to address the issue of multiple valuations. If we left it to all the potential purchasers to get their own valuations during the marketing process, we would still have multiple valuations. The objective is met by the production at the outset of one valuation on which everyone can rely.
I hear what you say. Purchasers will have the valuation and I am sure that they will look carefully at the structural report and the condition of the property, but I am asking you about the position two months down the line. Are you telling me that people who have to borrow from a building society are not going to rely on the valuation that was given two months earlier, perhaps at a time when the market was not as lively? They will require a valuation for the purposes of the lender to see how much money they can borrow, otherwise they will be borrowing on the basis of the first valuation.
The short answer is no. It will be the lender's decision. The lender will reserve the right to decide whether the valuation is acceptable, but that is the case at present. I arranged to buy a house in November and the survey was done in that month but I did not receive the mortgage funding and move into the property until March. The issue may not be a big one. Lenders will generally accept the valuation.
I will leave that one. The proof of the pudding will be in the eating. I also have a question on the register of surveys. What information will be included in the register? Is it the report and the valuation, putatively?
Yes.
I think that I read somewhere that the idea has been floated that people will have access to the register only if they put in a note of interest on a property. The information will not be widely available; one has to put in a note of interest.
Generally, it will be left to the selling agents to decide on the distribution of the report. Some sellers might want to make it freely available. It might end up on websites alongside the particulars, for example.
I see; I have misunderstood the situation. I thought that the register of surveys would be a national—
Are you talking about the register itself? I thought that you were talking about the availability of the single survey. Could you repeat the question?
I am asking how the register would work. Given that the Government will have set up a register of single surveys, if I am a seller who has had a single survey and a valuation done, do I take it that the information on my property—that is, the scheme 2 survey and valuation—will be available to members of the public? To whom will it be available?
To be clear, at the moment we are saying that it does not appear necessary to have a register. Were there to be one, its purpose would be to enable us to carry out quality-control checking of the survey and to allow us to ensure that people had carried out the survey. As is the plan in England, in cases in which there had been more than one survey of the property, the register could perhaps be used to make that fact known to people who are involved in the transaction. However, you are asking us to explain a policy development that has been carried out south of the border. We are not at present trying to make the case for that policy. I particularly stress the fact that we would have to go into the issue of confidentiality in great detail.
That was the point that I had in mind. I read, somewhere, that the information could be available to anyone who registered a note of interest. Anyone could do that—a neighbour or a developer, for example. I noted that and was a bit unhappy about it.
All that we know is that the housing improvement task force found that one firm was offering a self-insured hidden defects guarantee at, effectively, no cost, or at least no transparent cost. The quotation that was obtained by the task force was that the cost would be around £100 a survey for hidden defects. That reflected the position of the market at the time. The fact that the cost is of that scale is a good reason not to make such a policy mandatory.
So the figure of £400 was being bandied about as a guesstimate of the single seller survey and the hidden defects guarantee would bump that figure up by another £100.
On those estimates, yes.
As time is marching on and we have the minister waiting outside, I ask members to keep their questions short and our guests to make their answers as concise as possible.
I will do my best, convener.
We are providing assurance to potential purchasers about the quality of the survey by putting them in a similar contractual position to the one that they would have been in if they had purchased the survey themselves. We will bolster that using section 104 of the Scotland Act 1998. Against that background, we are not in a position to regulate estate agents, because that is a reserved matter. However, there must be a degree of transparency in such relationships and the contractual responsibilities of the surveyor have to be clear. That ought to be the basis for instilling confidence in the product in consumers. Neil, do you have anything to add?
Very little, other than to say that such relationships probably exist at the moment anyway and I do not think that we would be able to change them.
In relation to estate agents, section 114 of the bill requires a local authority to notify the Office of Fair Trading where there has been a breach of duties. That feeds into the wider duties that local authorities have in relation to estate agents. The situation is therefore not quite as open and unregulated as it might appear.
You acknowledged that the regulation of estate agents would not be within the powers of the Parliament. However, given that, the fact that there will be a new duty in terms of single surveys and the fact that such relationships might have operated for a long time, do we not need to be explicit about the relationship between surveyors and estate agents to protect consumers? Should we not look to preclude such relationships? Would that not ensure that there is the confidence in the system that we are all looking for and which you recognise but do not seem to be willing to do anything about?
The short answer is that we are not in a position to go that far. We are putting in place other mechanisms to ensure that there is consumer confidence. There are commercial relationships, but that is the nature of the market. We are reluctant to intervene in the market's ability to provide solutions to people who are buying surveys. For example, there are attractions in the complete package being available through an estate agent, because there may be financial benefits, so we are reluctant to intervene unnecessarily in such relationships.
Your paper states:
That reflects discussions in the advisory group. We set up a sub-group involving the Law Society of Scotland, the Scottish Consumer Council, ourselves, Neil Ferguson and the National Association of Estate Agents to re-examine the housing improvement task force's recommendation that there would be benefits in bringing forward to the start of the conveyancing process the compilation of warranties, planning permission, evidence of title and so on that normally occurs at the end of the process and which can cause problems.
I can see a problem with that, though. The acting solicitor would have to have the title deeds to complete the questionnaire veritas, so there would be costs involved. All the costs of the purchasers information pack would be levied on the seller if the solicitor's time and the ordering of documents were required. It does not seem to me that you are solving the problem. To complete the questionnaire, the solicitor would have to have the information in front of them.
The Law Society's proposal is slightly different. Instead of the questionnaire being completed by the selling solicitor, it would be completed at an early stage by the seller, who may have lived in the property for many years and would know the answers to many of the questions about burdens, structural alterations and that kind of thing. The Law Society's proposal is that the seller should complete the questionnaire.
How far down the road are you with that proposal? It sounds to be fraught with difficulties. For a start, a lot of people will not know what is meant by the word "burden". They may have been in the house for only five years and may not be aware of the fact that long-since-forgotten structural alterations were done by someone else. The proposal is fraught with difficulties and would make for very complicated missives.
The advisory group has considered an initial paper on the matter from the sub-group, which involved the organisations that I mentioned. A number of issues have been raised, including some of the sort that you have just mentioned. The advisory group has been sent away to work up the proposal further. The proposal is not established policy yet, but there is a view around the advisory group that it seems to have the makings of a solution, because it would effectively provide information that would speed up the process. Nonetheless, the detail needs to be worked through and the proposal has to pass the test of not introducing significant extra cost but providing the reassurance that is necessary.
I accept that. I do not know what position the committee will take on this point, but we do not want to pass a bill that does not work in practical terms. Is there a timescale for resolving those practical issues that will determine whether the idea floats or sinks?
The committee would not be passing a bill that went into such detail. The bill is a power for regulation—
But it is in the detail that the enactment will take place.
I accept that it is the policy that underlies the bill. The next meeting of the advisory group will be in October, when we will consider a further proposal. The aim is to resolve the matter in time for the regulations. However, I do not think that we can expect the detail of the proposal to be worked out in time for the passing of the bill.
Oh dear. That is interesting.
As it stands, the regulations can make provision for that, but the seller or their agent would have to possess the information at the time that the house was marketed. We are considering drafting an amendment to provide more flexibility, so that it may not be necessary for the seller to have the information on the day that the property is marketed. That applies to the purchasers information pack, but different considerations apply to the single survey, for which we would want the seller to have had the survey and considered it before going to market.
So you are separating out the two things.
I think that different considerations apply to them.
I presume that the bill will be amended to reflect that.
If we felt that such flexibility was necessary, we would lodge an amendment to allow it.
Cost is a big issue for people, particularly those who are on low incomes. It seems to me that there are many ifs and buts in your paper about what the information pack will contain, whether it will be a questionnaire, how much it will cost to assemble the pack and whether a seller or their lawyer will do that. How can we get an idea of what the cost of the pack will be for the seller of an average house, rather than of a posh castle, in terms of their outlays at the beginning of the process?
The advisory group expects the pre-sale questionnaire proposal to be cost neutral, because solicitor time would be saved at the end as a result of the process being simplified, albeit there may be a small outlay at the beginning. Therefore, the process will be cost neutral, or will even save money, rather than add expenditure to the process of buying and selling. That is what we expect at this stage, but we will need to work up the proposal in further detail.
People on low incomes may have no money to pay for anything, even the single seller survey. How is the development of a loan system coming on?
First, I will complete Neil Ferguson's point. For both the single survey and the purchasers information pack there will be a full regulatory impact assessment, with costings of a detailed proposal, when we produce the proposed regulations. The committee will be able to consider that matter then.
That is probably different from what local authorities would say, but there we are.
I have a quick question about the right to buy. You reflected on the committee's recommendation on the right to buy, which is to be welcomed. However, your paper states that a report would be provided
First, as you will see from our paper, we agree that right-to-buy purchasers need better information. However, and to take a slight step back, a number of the problems that have been raised with us about the information that people have also relate to people not understanding costs or forthcoming improvement programmes, which can delay landlords. The bill includes a power to specify what information will be provided.
I wanted to clarify that such issues would be considered.
There are two issues associated with shared equity properties. If someone buys new into a property that has been marketed, we would expect a single survey to be provided. We do not want a single survey to be required when someone is tranching up. That makes no sense for the additional tranches.
That is a helpful answer.
The only amendments that we are considering for part 3 are amendments to provide flexibility in respect of timing, to which I have referred, to enable us to take up the option of requiring registration of surveys, if we need to, and to address specific provisions relating to the right to buy. We do not expect to bring forward a detailed scheme for either the single survey or the purchasers information pack. We believe that that information should be included in regulations. Much careful work with stakeholders is needed in order for us to get there.
Thank you for your attendance. The meeting will be suspended until 11.30 to allow for a changeover of witnesses.
Meeting suspended.
On resuming—