Section 307 – Approved lending institutions
879.If a tenant buys his home under the right to buy and then resells it within five years, his former landlord may require him to repay some or all of the discount he received. This obligation is secured by a charge on the property. Usually a right to buy purchaser will rely on a loan by way of mortgage, and the lender will also protect the loan by a charge on the property. Charges are ranked chronologically, and the landlord’s charge would take precedence over the lender’s. However, if the lender is one of those specified in section 156 of the Housing Act 1985 or approved by the Secretary of State under that section (“approved lending institutions”) their charge may take precedence over the discount charge - i.e. they have the first charge on the property, giving them the best security for their loan.
880.Section 307 removes the Secretary of State’s powers under section 156 to specify bodies as approved lending institutions and to revoke that status. The section instead adds “authorised mortgage lenders” to the list in section 156(4) of automatically approved lending institutions. It also adds a definition of authorised mortgage lenders to section 622 of the 1985 Act. These are (i) bodies which are authorised by the Financial Services Authority (FSA) and (ii) European lenders automatically entitled to operate in the United Kingdom. The overall effect is to combine the process of approving lenders for right to buy purposes, currently carried out by the Secretary of State, with the process of authorising lenders carried out by the FSA. “Authorised insurers” and “authorised deposit-takers” are also automatically approved lending institutions under section 156(4) of the Act, and section 316 (see below) amends the definitions of those bodies in section 622 of the Act to conform with the definition of authorised mortgage lender.