Amended template Mortgagee Protection Clause

A group of sector stakeholders has secured an amended template Mortgagee Protection Clause that supports the need for housing associations to aim for increased security values within Section 106 agreements.

6 December 2018

The Property Finance Working Group, previously called the Securitisation Working Group, has been working to agree a consistent approach to the MPC within S106 agreements to ensure that housing associations can achieve best possible funding value when securing loans against social housing assets. 

The intention behind an MPC is to protect the funder and anyone acting on behalf or for the funder to be able to carry out its duty as a mortgagee, should a borrower default on its loan. Where the MPC does not provide sufficient protection for the funder and they would be bound by the affordable housing restrictions in the S106 Agreement, the value would be limited to Existing Use Value for Social Housing (EUV-SH). 

The best possible funding value is Market Value Subject To Tenancies (MV-STT), where the funder would be able to sell on the open market, to either a housing association or a non-regulated purchaser; and neither the lender nor successors in title would be bound by the affordable housing restrictions in the S106 Agreement.   

The Property Finance Working Group is made up of representatives (including lawyers (acting for both funders and borrowers), borrowers and valuers) and was set up in August 2014. The representatives of the Group are from London and Quadrant Housing Trust, Addleshaw Goddard, Allen & Overy, Clarke Willmott, Clifford Chance, Devonshires, JLL, Savills, Trowers and Hamlins, Wright Hassall and Winckworth Sherwood. 

The Group has worked collaboratively with the Greater London Authority (GLA) to agree the clause that will enable housing associations to access MV-STT valuations on the basis that there are no restrictions identified through due diligence. The amended clause has been agreed with the GLA.

Housing associations are strongly encouraged to consider the wording of the MPC within S106 agreements and understand what asset funding value could be achieved at the earliest possibility, i.e. at the point of negotiation using in-house expertise or external advice.

We are aware that this change directly benefits housing associations operating in London. However, we believe that the amended clause should also help associations around the country work with local authorities to reach their shared ambition to develop more affordable housing in their local areas.