Deregulation and Contracting Out Act 1994

16 Building societies: class 1 and 2 advances—third party mortgages

(1) The Building Societies Act 1986 shall be amended as follows.

(2) In section 10 (advances secured on land), after subsection (4) there shall be inserted—

“(4A) The power to make an advance secured on land includes power to make an advance which is secured as mentioned in subsection (1) above by virtue of security granted otherwise than by the borrower (in this Act referred to as “an advance secured on third party land”).”

(3) In section 11, in subsection (2) (definition of class 1 advances)—

(a) in paragraph (b), at the beginning there shall be inserted “where the advance is not an advance secured on third party land,”,

(b) after that paragraph, there shall be inserted—

“(ba) where the advance is an advance secured on third party land—

(i) the borrower intends that the advance will be used for the purpose of acquiring land for the residential use of himself or a dependant of his of a prescribed description; and

(ii) the land on which the advance is secured is for the residential use of the mortgagor or a dependant of his of a prescribed description;”, and

(c) in paragraph (c), for the words from “mortgage debt” to “land)” there shall be substituted “outstanding amount secured by a mortgage of the land in favour of the society)”.

(4) In subsection (3) of that section (when requirement as to use of land for residential purposes to be treated as satisfied) the words from “the requirement” to the end shall become paragraph (a) and at the end there shall be inserted—

“(b) the requirement in subsection (2)(ba)(i) above shall be treated as satisfied if the borrower intends that no less than 40 per cent. of the area of the land will be for the residential use of himself or a dependant of his of a prescribed description; and

(c) the requirement in subsection (2)(ba)(ii) above shall be treated as satisfied if no less than 40 per cent. of the area of the land is used for residential purposes by the mortgagor or a dependant of his of a prescribed description.”

(5) In subsection (4) of that section (definition of class 2 advances) in paragraph (c), for the words from “mortgage debt” to “land)” there shall be substituted “outstanding amount secured by a mortgage of the land)”.

(6) In section 12 (class 1 and class 2 advances: supplementary provisions) after subsection (5) there shall be inserted—

“(5A) Subsection (5) above shall also apply as respects advances secured on third party land which is to any extent used for the residential use of mortgagors or persons who are dependants of theirs for the purposes of section 11(2).”

(7) In section 12(10) (reclassification of class 1 and class 2 advances following a material change of circumstances)—

(a) in paragraph (c), there shall be inserted at the beginning “in the case of an advance which is not an advance secured on third party land”, and

(b) for “or” at the end of that paragraph there shall be substituted—

“(ca) in the case of an advance which is an advance secured on third party land—

(i) is satisfied on notice given to it by the borrower that there has been a change in the use of the land acquired with the advance, or

(ii) is satisfied on notice given to it by the mortgagor that there has been a change in the use of the land on which the advance is secured, or”.

(8) In section 16 (power to lend to individuals otherwise than by class 1 or 2 advances) in subsection (15) (reclassification of loans under section 16 as class 1 or 2 advances)—

(a) in paragraph (b), there shall be inserted at the beginning “where the mortgage is granted by the borrower,”, and

(b) for the words from “or” at the end of paragraph (b) to “notice” in paragraph (c) there shall be substituted—

“(c) where the mortgage is granted otherwise than by the borrower and the loan has been used to purchase land—

(i) on notice given to it by the borrower that there has been a change in the use of the land purchased, or

(ii) on notice given to it by the mortgagor that there has been a change in the use of the mortgaged land, or

(d) on notice given to it—

(i) where the mortgage is granted by the borrower, by him, and

(ii) where the mortgage is granted otherwise than by the borrower, by the mortgagor,”.