We attended a recent meeting of the Securitisation Working Group in London which turned into something considerably more interesting when representatives from property experts, Savills and JLL, revealed that they had been working closely with Treasury on the aspects of the new housing bill which will give some comfort to funders. Some of these changes align the administration rules for an RP more closely with insolvency rules and others relate to the mortgagee exemption clause.
Proposed changes to the Housing Bill
The bill will be issued as a second draft week commencing 8 February, giving everyone five working days to respond thereafter. It is the government’s intention to put the bill in place before the next financial year (which is important because of the rent changes).
The Housing Bill enables the Secretary of State or the HCA to put an RP into “Special Administration” giving them the power to appoint a receiver. Following Savill’s and JLL’s intervention, the original bill is likely to incorporate the following changes:
- The priority for the appointed receiver will change from protecting the stock first, to protecting the creditor. This means that funders will be first in line to get back their money (as in an insolvency position);
- In line with insolvency rules, it is likely the redrafted bill will reflect a period of twelve months for the administration period (where previously there was no timescale);
- The section 106 agreements will not be affected (apart from the point about receivers referred to below). Under the standard approved form of mortgagee exemption clause in s106 agreements, there is a three month period for a mortgagee to sell after which time there will be nothing to prevent an administrator disposing of land. In other words, the parties do not have to wait for the six month period to have expired;
- S172 and s133 consent requirements will disappear. Savills and JLL do not think this will concern the funders as their housing stock will be protected by legal charges;
- The removal of s133 will give RPs the ability to uplift valuations on LSVT stock from EUV to MV-STT (our campaign);
- There was some doubt about the preservation of an MV-STT valuation, but this will stay as it is now – there will be a new valuation model of EUV which will be more positive than the current EUV.
Mortgagee exemption clauses
The main issues for funders, valuers and RPs is that the model form of mortgagee exemption clause put forward by the group will no longer be acceptable, as it refers to the clauses giving exemption being for the benefit of a mortgagee or chargee or a receiver appointed by them.
The group agreed an acceptable form of wording to insert into the clause: “a receiver howsoever appointed” which means that the exemption would apply to a receiver appointed by a mortgagee, the Secretary of State or the HCA, or whoever in the future would have the power to appoint a receiver.
Concern was raised about the current mortgagee exemption clauses which would no longer be acceptable. This would apply on recharging or if the funders decided to call for a fresh valuation. The impact of this change is likely to have the effect of reducing valuations by between £6-8 billion.
It was agreed that the neatest way to resolve this would be for the bill to define “receivers” in all section agreements and to include “any receiver however appointed” in all other contracts in mortgagee exemption clauses.