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The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Yvette Cooper) : I beg to move, That the clause be read a Second time.
New clause 4 deals with a proposal that we were keen to introduce in the Bill, but for reasons of complexity we were unable to get a complete draft of it in time for our deliberations in Committee. We have, however, circulated the details to members of the Committee, and to the Council of Mortgage Lenders and others, to ensure wide consultation.
The new clause deals with situations where property is subject to compulsory purchase order, where agreement has not been reached about the final level of compensation, and where the owner has moved out but has a mortgage on the property. Currently, it is possible for advance payments of compensation to be considered and given. Acquiring authorities can pay up to 90 per cent. of the value of the compensation that they have proposed. However, if the owner has a mortgage, the situation becomes more complicated. The acquiring authority then has to withhold the amount that it estimates will be needed to pay off the mortgage. If the mortgage is still worth more than 90 per cent. of the estimated compensation, the acquiring authority cannot pay out anything at all. That is to protect acquiring authorities against having to pay out twice.
If the owner does not use the cash from the advance payments to pay off the mortgage, and then disappears, the acquiring authority may still have to pay off the mortgage in order to get the property. The trouble is that the consequence of such protection is that property owners can find themselves removed from their home and still paying the mortgage—including the interest—until the matter is finally resolved. If the case has to go to the Lands Tribunal, it takes time. In the meantime, such people will probably need to pay new accommodation costs as well.
New clause 4 aims to address those problems. It allows the advance compensation to continue to be withheld from the mortgage holder, but to be paid instead to the mortgage lender. The payments can go directly to the mortgage lender, and in many cases will pay off the mortgage entirely. Where they do not, they will still reduce the debt on which the owner has to pay interest. The new clause still distinguishes between cases where the outstanding mortgage is less than 90 per cent. of the estimated compensation, and those where it is more.
In cases where the mortgage is less than 90 per cent. of the value of the compensation, the acquiring authority can still pay advance compensation of 90 per cent. of the value of the compensation in total, divided between the mortgage lender and the mortgage holder accordingly, but where the mortgage is worth more than 90 per cent. of the value of the compensation, the acquiring authority will need to pay out 90 per cent. of the value of the land to the mortgage lender. There is a reason for this. Where the mortgage is very high in
relation to the value of the compensation, other factors may need to be considered in resolving the final amount of the compensation to be paid to different parties. For example, if there is negative equity, section 15(1) of the Compulsory Purchase Act 1965 provides for the balance of what is to be paid to the mortgage holder and the lender to be determined, if necessary, by the Lands Tribunal, if it cannot be determined through agreement. We are not changing these provisions, so it is important that the advance compensation payments do not pre-judge that process.7.45 pm
I turn briefly to the detail of the new clause. Subsection (3)—the important part—inserts new sections 52ZA, B and C. The purpose of new section 52ZA is to deal with cases where the mortgage principal does not exceed 90 per cent. of the estimated total compensation due to the claimant. Subsection (2) requires the acquiring authority to reduce the advance payment to the claimant by the amount that it thinks will be required to secure the release of the mortgagee's interest. Subsection (3) requires the authority to pay that amount to the mortgagee if the claimant so requests, and if the mortgagee consents.
New section 52ZB applies where the land is subject to a mortgage and the principal exceeds 90 per cent. of the total. Under those circumstances, subsection (2) specifies that no payment is to be made to the claimant. Subsection (3) requires the authority to make an advance payment to the mortgagee if the claimant so requests and the mortgagee consents. Subsection (8) specifies that the total amount paid out to mortgagees must not exceed 90 per cent. of the value of the land.
New section 52ZC includes other provisions, such as a requirement for the claimant to provide such information as the acquiring authority may need to deal with a request for an advance payment to a mortgagee.
These proposals command widespread support, certainly from those whom we have consulted. This is a sensible measure that simply allows us to deal with the current unfairness and the difficult situation in which mortgage holders whose property is subject to compulsory purchase orders find themselves. I therefore commend the new clause to the House.
Mr. Clifton-Brown: This matter arose during the proceedings of the second Standing Committee. The right hon. Member for Streatham (Keith Hill) said that this clause would be introduced, and the Opposition welcome it. Where land is subject to a mortgage, whether it is above or below the 90 per cent. level, it is sensible that provision be made so that advance compensation of up to 90 per cent., depending on the circumstances, can be paid to the mortgagee or lender. Such a provision is eminently sensible and should be applauded. We also welcome new section 52ZC and the other measures. Provision should of course be made so that somebody who has information must provide it, be it the lender or the mortgagor. That way, we can see exactly what the situation is.
There is one matter on which I am not clear, however, and perhaps the Minister would like to say a little about it. Where the mortgage is less than 90 per cent. of the value and the mortgagee and mortgagor cannot reach
agreement, who will arbitrate and decide where payment should be made to? Of course, that point also applies to cases involving negative equity. In such cases, both the mortgagee and mortgagor will suffer. Who will decide who is to suffer in what proportion? It would be helpful if the Minister could say something about the existing conciliation or appeal mechanisms in respect of these provisions. That said, this highly technical new clause is widely welcomed by the industry, and by the Opposition.
Matthew Green: I rise briefly to add our support to the new clause. The Government are clearly right to introduce changes in respect of land to which a mortgage is attached. However, the new clause does not entirely deal with the issue of negative equity, and some concerns remain.
Clearly that could cause considerable financial distress to the people concerned, so we should like to see further action on that. However, in so far as it goes, the new clause is welcome.
Yvette Cooper: I welcome the support given by hon. Members to the proposal. The hon. Member for Cotswold (Mr. Clifton-Brown) made two points. The first concerned what happens when the mortgage is less than 90 per cent. and agreement cannot be reached. That is exactly the type of case we are talking about: where a matter may have to go to the Lands Tribunal, agreement has not yet been reached or overall compensation is being withheld. Those are the circumstances in which advance payment should be made.
If the mortgagee does not consent to receive the money, there will be no advance payment. Advance payments can be made to the lender only if the lender and the holder agree that that should be the case. In many cases, that will be in the interests of the lender and the holder, so one would expect them to agree to the advance payments unless there were some special circumstances that required complex arrangements. Paying the advance payments to the lender requires the consent of both parties.
The second question was what happens when there is negative equity. There are arrangements under the 1965 Act that provide that the overall amount of compensation to be paid to different parties should be agreed between the lender, the holder and the acquiring authority. We are not proposing to change the current procedures. The only important matter in terms of changing the advance payment arrangements is that we do not prejudge the process under the 1965 Act of resolving the final amount of compensation and who should receive it.
Where there is a dispute about how much should be paid between the lender, the holder and the acquiring authority in a case where there is negative equity, the matter can go to the Lands Tribunal. The only additional relevance to the advance payment arrangements is that the amount paid out in advance to the mortgage lender will be restricted to 90 per cent. of the value of the land, rather than 90 per cent. of the value of the compensation, to ensure that we do not prejudge the final decision of the Lands Tribunal or the final negotiation and agreement between the different parties about the total value of the compensation and who should be paid.
The advance payment arrangements do not change the position in terms of negative equity: they recognise that this is a complex matter and try not to amend the arrangements. These are sensible proposals and will be in the interests of mortgage lenders and of holders who are in this situation.
Mr. Clifton-Brown: Does the decision to refer the case to the Lands Tribunal apply to the 90 per cent. advance payment as well as to the eventual payment, in circumstances where there is negative equity, or are we talking only about the eventual payment and the split between the mortgagee and mortgagor?
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