With reduced grant availability, many registered providers are looking at opportunities to charge, and recharge, existing housing stock to release funds into their business. Time put into the process early on can reap considerable benefits at drawdown
The challenge for all RPs considering the charging route is to ensure that the process is completed quickly and with minimum reduction in drawdown. One simple way to achieve this is to consider 'front loading' the work that the lenders will require before the process gets underway.
This process of 'health checking' target properties for charging is a simple and effective portfolio management tool. It allows RPs to identify and remedy potential title and valuation issues so that the properties offered to the lender are clean from a funding perspective. This process can include a review of the following potential pitfalls:
A quick check of the portfolio titles can highlight issues that could hamper charging, such as:
- title restrictions where third party consent may be needed
- restrictive covenants limiting use to affordable housing (but perhaps there is an exclusion for mortgagees in possession?)
Also, is the whole of a title going to be charged? If not, this can create delays as lenders' lawyers and valuers will want to approve plans and the drafting of rights granted/reserved between the various parcels.
Similarly, it is really important that you own all of the land that you intend to charge, and that there are no ownership gaps that aren't covered by adequate title insurance. A high level title review should flag all of these issues and prevent them from becoming problems before completion.
Do you have any existing conveyancing searches on file that can be reused when the bank starts its due diligence? Typically banks will want updated local searches, but it may be possible to recycle mining, chancel repair and services searches (particularly if the site is a recent acquisition), saving time and money.
These are particularly important with new properties where there is no prospect of claiming 'established use'. Lenders will want proper evidence of planning permission to authorise the use/development, together with evidence of discharge of relevant planning conditions and section 106 obligations.
Where there are ongoing obligations, such as for second and subsequent sales of plots, lenders will be looking for clear evidence of mortgagee exclusions or, if not, proper cascades, so that they are not left with unmarketable stock if they enforce their security.
If variations are needed to existing planning paperwork, this can take time to resolve and needs specialist input at an early stage. So if the property represents a key part of the security it is better to identify and address the issue before offering stock for charging.
Other issues to consider with new properties will be whether you can provide written evidence of Building Regulations compliance and NHBC or equivalent cover, as well as a discharge for any environmental conditions in the planning permission.
New developments may not yet have the roads and drains adopted, particularly if they are part of a larger scheme and the affordable housing has been sold early, so lenders will want to see that the obligations to deal with roads and sewer adoption have been covered properly in the purchase paperwork. Do you have copies of the adoption bonds, and indemnities from the developer to procure adoption?
Generally, a lender looking to advance against a portfolio will not be looking for reasons to exclude stock from charge, nor to limit funds drawdown. However, the lender (and their solicitors and valuers) will want to be sure that the portfolio represents a good risk for them to lend against.
Any issues which arise during the charging process can cause delay and might limit drawdown - a proactive title review before the process starts can actually make charging quicker and slicker for all parties.
Indeed, at the point of acquisition it makes good sense to set up a separate 'charging' file which can be handed over to your solicitor when you are ready to bring the units under charge, containing all of the relevant information that will be needed.
By front loading the work it gives you time to review the portfolio and to resolve potential issues in a considered and cost effective way. This removes lender pressure for stock to be excluded from the charging pool and mitigates any pressure that may be brought to bear to reduce drawdown on 'defective' properties.