Mortgage Protection Clause and Consent to Mortgage policy
Part of the Trust’s Leasehold Framework - Level 2 Policy approval. Version 2 approved 24 September 2020. Doc Ref: 14470-06-2
1.1 This policy relates only to shared ownership leases issued by Aylesbury Vale District Council (AVDC) now known as Buckinghamshire Council before the 2006 stock transfer, of which the Trust is now the landlord. As issued, these leases do not contain a Mortgagee Protection Clause (MPC).
1.2 This policy does not relate to shared ownership leases issued since stock transfer, which already include a MPC as per Homes England (HE) guidelines.
1.3 The purpose of this document is to present the general policy on requests for MPC’s to be added to ex-AVDC / Buckinghamshire Council shared ownership leases, and the granting of the necessary accompanying Consent to Mortgage. The policy sets out the aims, principles and values that will be followed by the Vale of Aylesbury Housing Trust (the Trust) in its dealings with these shared ownership leaseholders, who purchased their lease from AVDC / Buckinghamshire Council.
2. Statement of Intent
2.1 The Trust is bound by the terms of its leases and by legislation, as are its leaseholders (in this case, stock-transferred shared owners).
2.2 The Trust as landlord has a legal duty to maintain the integrity of its stock and to protect against anything which might prejudice the Trust, the stock or residents, now or in the future.
2.3 The Trust aims to minimise risk now and in the future, whilst at the same time fulfilling its responsibilities as a Registered Provider by affording a reasonable level of assistance to shared owners.
2.4 MPC’s present a potential risk to the Trust. In the event of a lender repossessing the lease the Trust could be liable for any negative equity.
2.5 However the Trust recognises that it is now the norm for lenders to require an MPC and that leases are therefore difficult to sell without one.
2.6 In order to balance the requirement of the Trust to manage its risk and the need of the shared owner to be able to sell, this policy sets out the circumstances in which the addition of an MPC to the lease will be allowed and the circumstances in which Consent to Mortgage will be granted.
3.1 A Mortgagee Protection Clause will normally be requested when an AVDC / Buckinghamshire Council-issued shared ownership lease is to be resold. For wider resales policy, see the Shared Ownership Sales and Resales Policy 14470-04
4. Mortgagee Protection Clauses
4.1 As long as the proposed borrowing is for the purpose of purchasing the lease, the Trust will allow an MPC to be added to an ex-AVDC / Buckinghamshire Council shared ownership lease. The MPC will be added via a Deed of Variation and an administration fee will be charged in addition to the Trust’s costs (legal fees plus disbursements). The administration fee is currently £200+VAT and is reviewed annually as part of the Trust’s overall review of fees and charges.
4.2 The MPC will be drafted so that it will only be enforceable by the lender if the Trust has given its prior written consent to the Mortgage/Charge to be granted. Upon requesting the addition of an MPC to the lease, the leaseholder (or their representative) will be advised of this. He/she will also be advised of the Trust’s policy on any subsequent consent to mortgage (see Section 5).
4.3 Consent to the inclusion of a MPC will not be consent to any Mortgage/Charge.
5. Consent to Mortgage
5.1 If no MPC has been added to the lease then the Trust is not at risk from negative equity. Subject to the leaseholder satisfying the Trust of his/her ability to meet the financial and other commitments under the lease, consent to mortgage in these circumstances will not ordinarily be denied on grounds of financial risk.
5.2 If an MPC has been added to the lease it will only be enforceable by the lender if the mortgage has landlord consent. The Trust as landlord will only consent to the proposed mortgage (thus validating the MPC) once it is satisfied as to the financial risk presented by the leaseholder/ buyer of the lease.
5.3 The Trust will satisfy itself as to the risk presented by the buyer with its own financial assessment, for which a fee will be charged (see document “Home Ownership Fees and Charges” ). The Trust will consider, amongst other factors, the likelihood of the MPC being enforced, the value of the property in comparison to the loan/mortgage, the financial standing of the applicant and any other contributing adult/s (current and any relevant previous history), the applicant’s ability to satisfy the financial and other commitments under the lease and any other relevant factors.
5.4 If the Trust (in its absolute own discretion) considers the applicant to present an undue risk to the Trust, consent to mortgage will be denied.
5.5 If the mortgage is for any purpose other than the purchase of the lease, consent to mortgage will be at the Trust’s absolute own discretion irrespective of whether an MPC exists or not.
5.6 The basis of calculation of the value of the property will be the Trust’s own independent property valuation.
6. Equality and Diversity
6.1 In line with the Trust’s Equality and Diversity commitments and its Single Equality Strategy, all applicants for shared ownership leases will be treated fairly, equally and with respect regardless of their gender, race, age, disability, faith, marital status or sexual orientation.
7. Value for Money
7.1 This policy protects the Trust against risk but also affords reasonable assistance to ex-AVDC shared ownership leaseholders.
8. How the policy will be implemented
8.1 The Leasehold team is responsible for ensuring the implementation and operation of this policy.
9. Performance Measures and Monitoring
9.1 MPC’s and consents to mortgage are a legal issue and there is no relevant performance measure.
10.1 The Leasehold Manager will review this policy after three years or before if required by legislation or by best practice.
11. Legislation and other Documents
11.1 Relevant legislation:
Commonhold and Leasehold Reform Act 2002
Landlord and Tenant Act 1985
Leasehold Reform Act 1967
Contact and publication details
Authour: Anne-Marie Humphreys
Job title: Leasehold Manager