APPENDIX 8
Further reply from the Department for Transport,
Local Government and the Regions to the Clerk of the Committee
Proposal for the Regulatory Reform (Housing Assistance)
(England and Wales) Order 2002
We think that Article 3(7) of the draft RRO should
remain as currently drafted, giving local authorities the ability
to reduce or waive the priority of a charge on the property.
We believe that although section 138 of the 1996
Act may offer some small protection to local authorities, it would
be rarely used. The main aim of section 138 is to ensure that
the LA charge in relation to a relocation grant is placed after
the mortgage lender's charge, so as not to jeopardise the recipient's
chances of getting a mortgage on their new property. It therefore
provides a protection for both the recipient of the relocation
grant, and the lender.
Only where the loan to buy the property is given
by someone other than an approved lending institution, can the
authority place their charge above that loan. Further, the charge
is only called in if the new property is disposed of within the
grant condition period. Otherwise the charge would not have to
be repaid. The incidence of this is likely to be very low and
section 138 therefore seems to offer small protection for LAs.
We would not want to extend this to charges in relation
to assistance given under Article 3. Firstly, we believe this
would be unpalatable for lenders - the Council of Mortgage Lenders
has indicated as such. Such extension could jeopardise not just
the individual's ability to obtain a mortgage but also wider regeneration
initiatives which often rely on lenders' willingness to lend in
that area. Further, the existing legislation relating to LA land
charges in respect of renovation grants or home improvement loans
offers no similar protection for LAs. Any LA land charge is ranked
immediately behind any other charge on the property i.e. in the
order in which it is placed on the Land Register. Any subsequent
charges on the property fall behind the LA charge. It gives LAs
no advantage over another lender.
The draft RRO gives LAs the discretion to apply a
land charge, and more flexibility over whether it wants to reduce
that charge which will provide important protection to the recipient
of the assistance. Ultimately, the discretionary nature of the
new legislation means that the LA would not have to give assistance
where it considers it to be too risky.
25 February 2002
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