Select Committee on Deregulation and Regulatory Reform Sixth Report


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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