Distributed to
All registered social landlords excluding co-ownerships.

Summary
Clarifies Housing Corporation requirements on prepayment of Housing Corporation loans.

Sets cut-off dates for RSLs to change or redeem Low Start Loans (introduced in circular F2 - 23/93) and also for further consolidations of security under circular F2- 04/94 (introduced in circular F1 - 26/95).

This circular replaces the relevant parts of circular HC - 15/80 and amends circulars F2 - 23/93 and F1 - 26/95.

1 Prepayment of Housing Corporation loans

Voluntary sales

1.1 In some cases the Housing Corporation has allowed RSLs to prepay at par loans outstanding on property sold either to the tenant of the property under a voluntary sales scheme or as vacant property.

1.2 As from 1 March 1997, subject to the Housing Corporation's prior consent as lender, RSLs will be able to sell property either to the tenant of the property or vacant provided that on the date of the sale the RSL prepays the outstanding loan on such property or a proportionate part if the loan is charged on more than one property plus such additional amount as the Housing Corporation may certify as is necessary to compensate it for breakage costs.

1.3 The provisions of paragraph 1.2 do not apply to RSLs who have consolidated in accordance with circular F1 - 26/95 where specific prepayment provision are written into the Consolidation Deed.

Section 9 Consent

1.4 The General Consent 1996 allows RSLs without any additional Section 9 Consent to dispose of a property to an existing tenant subject to having received the prior agreement of the Housing Corporation to the introduction of a voluntary sale policy, (such agreement to be obtained from the appropriate regional office).

1.5 Otherwise specific Section 9 Consent will be required by an RSL to sell voluntarily a tenanted property or a vacant property.

1.6 The General Consent 1996 gives general consent for disposal pursuant to the VPG Scheme described in circular F2 - 06/96 or under Section 21 Housing Act 1996.

Prepayment of part of outstanding loans

1.7 In some cases the Housing Corporation has allowed RSLs to repay with full breakage costs some but not all of their outstanding loans and allowed release of related security.

1.8 As from 1 March 1997 the Housing Corporation will not allow RSLs to repay some but not all of their outstanding loans prior to consolidation otherwise than following right to buy (at par) staircasing (at par) sale to tenants or vacant units (plus breakage costs) or following a compulsory purchase order (plus breakage costs).

1.9 Paragraphs 1.7 and 1.8 apply to prepayment by RSLs that have not consolidated under circular F1 - 26/95. RSLs who have consolidated are able to prepay subject to the provisions of the Consolidation Deed of Variation.

Right to Buy

1.10 It has been drawn to the Housing Corporation's attention that paragraph 3.2.2 of circular HC - 15/80 is not clear.

1.11 The Housing Corporation withdraws paragraph 3.2.2 of circular HC - 15/80. In practice RSLs have only prepaid loans on individual properties and such is to remain the position. There is no right to repay the whole of a loan secured on several properties if only one or more but not all are sold under the Right to Buy.

Re-improvement schemes

1.12 The Housing Corporation has allowed RSLs to prepay loans at par when they carry out Mixed Funded Re-improvement schemes. However as from 1 March 1997 the Housing Corporation will expect RSLs to prepay plus breakage costs. As an exception to paragraph 1.8 above the Housing Corporation will allow prepayment of the original scheme loan without requiring prepayment of all outstanding loans.

2 Low start loans made under circular F2 - 32/89

2.1 The Housing Corporation circular F2 - 28/93 which announced that no more loans would be made under the conditions of circular F2 - 32/89 also encouraged RSLs with such loans to switch to either a conventional loan, a variable rate low start loan or to redeem.

2.2 As from 17 January 1997 the Housing Corporation will not allow RSLs to change or redeem their loans taken out under circular F2 - 32/89 except where the RSLs prepays all their loans with breakage costs.

3 Consolidation of security under circular F2 - 04/94

3.1 Circular F1 - 26/95 permitted RSLs to continue to consolidate mortgages under the provisions of circular F2 - 04/94 where a valuer had been instructed before 31 August 1995. From 17 January 1997 no further consolidation will be allowed under the provision of circular F2 - 4/94.

4 Enquiries

4.1 Please direct any enquiries on this circular to Mick Winter, Finance Division, The Housing Corporation, 149 Tottenham Court Road, London W1P 0BN. Telephone 0171 393 2240.