4. Additional Secured Lending - same Lender / different Lender
Where an owner wishes to take additional secured lending the RSL will need to consider whether that will result in the Primary Lender increasing the amount by which their security will rank ahead of the RSL / Scottish Ministers. It should be noted that what is envisaged here is additional lending by the Primary Lender, and not lending from another lender in addition to the Primary Lender. Scottish Ministers' position on additional lenders and third-ranking standard securities, is set out in Section 8.
Example 1 - Remortgage / new Lender - no consent required
(a) the original loan to acquire the property was £70,000 (including fees forming part of the principal) which ranked ahead of shared equity provided by Scottish Ministers of £30,000;
(b) at the time of re-mortgage £4,000 has been paid off the capital reducing the principal amount due to the Primary Lender to £66,000;
(c) the principal amount proposed to be borrowed from the New Lender is £69,000;
No consents nor any new documentation will be required (but if a New Lender is involved, please follow Section 3 for a 'Change of Lender').
Example 2 - Increase in existing loan / same Lender - no consent required
As above, save that the additional lending is from the same Lender increasing their total lending to £69,000;
No consents or documentation are required as there is no increase in the amount by which the Lender will rank ahead of Scottish Ministers.
Example 3 - Remortgage / increase in existing loan - consent is required
As Example 1 save that either (a) the principal amount to be borrowed from the New Lender is £75,000 or (b) in the case of an existing loan being increased, the additional loan from the Existing Lender is £9,000, increasing total lending to £75,000.
Assuming the New Primary Lender wishes to increase the amount of the original prior ranking from £70,000 to £75,000, consent is required as the amount by which the lender would rank ahead of Scottish Ministers is increased.
By way of concession if (a) the increased lending is by way of re-mortgage and (b) the amount by which the New Lender wishes to increase the priority by which they would rank ahead of Scottish Ministers is no more than £2,000, then no consent is required.
It should be noted that this only applies on a re-mortgage and not to a further loan from an existing Lender where any increase above the original priority will require consent. The reason for the distinction is to take account of likely re-mortgage costs.
As Example 3, save that principal amount to be borrowed is £72,000.
In the case of additional lending from the Existing Lender - consent required
In the case of a remortgage with a New Lender - as a concession, consent not required.
What if Consent is required?
If consent of the Scottish Government is required, it will as a minimum need to be satisfied that (a) the proposed increase in the lender's prior ranking is covered by an increase in the valuation of the property and (b) that the reason for the borrowing is acceptable.
The Scottish Government will wish to view a copy of a current Valuation of the property. This may either be one instructed by the RSL or alternatively, Scottish Government will accept a copy current Valuation which has already been provided to the Primary Lender, together with appropriate confirmation from that valuer that this Valuation can be formally relied upon by Scottish Ministers. In each case the Valuation must be addressed to the party in whose name the Shared Equity is held which will be either the RSL or Scottish Ministers dependent on when it was provided - See Section 12 on Valuations and Letter of Reliance.
A draft email to the Owner's solicitors together with a proposed Letter of Reliance is set out in Annex 2(D) and Annex 2(E) in the case of a re-financing and Annex 2(J) and 2(K) where the advance is from the Existing Lender.
If the Valuation demonstrates that there is sufficient equity in the property it will require to be sent to the relevant Scottish Government housing area team Division for approval.
The relevant Scottish Government housing area team will be required to double-check whether there is available equity and any other relevant factors.
RSLs should send a copy of the Additional Secured Lending Authorisation form which is set out in Annex 2(N) to the relevant Scottish Government housing area team for a response.
If approval is granted, Harper Macleod will prepare a new Ranking Agreement for execution by the owner, the Primary Lender, and Scottish Ministers. In certain cases, Scottish Ministers or RSLs (for pre April 2008 transactions) may agree to enter into a separate letter with the Primary Lender and the owner which will not need to be registered in the Land Register. This will only be available, if at all, where there is an additional loan with the same Primary Lender. If this is not to be registered, arrangements for secure storage of both an electronic and the hard copy must be put in place in order to protect Scottish Ministers' interests.
A letter/email confirming that the transaction has completed will be sent by Harper Macleod to the RSL (copying in Scottish Ministers) at the end of the transaction.
Deed of Postponement
From time to time RSLs and/or Scottish Government More Homes Division area team may be asked by a Primary Lender or its agents to sign a Deed of Postponement or some other form of Agreement - or even a letter regulating the ranking of their security with that of Scottish Ministers.
These should never be signed. The forms of Ranking Agreement used for the various shared equity transactions have evolved in discussion with the Council of Mortgage Lenders and, among other matters, contain provisions for consultation and disclosure that Scottish Ministers require in all cases and the current templates are those which Scottish Ministers propose to use in all circumstances. No other forms are acceptable.