[F1357A Substitution of security.U.K.
(1)Subject to subsection (9) below, this section applies where—
(a)on or after 16th March 1993 a person purchases an estate or interest in land or the property in a caravan or house-boat (the new estate, interest or property), and
(b)a security substitution arrangement takes effect on or after that date in connection with the purchase.
(2)Subsection (3) below applies where—
(a)the arrangement mentioned in subsection (1) above relates to one existing loan only, and
(b)no other security substitution arrangement takes effect at the same time in connection with the purchase of the new estate, interest or property.
(3)As regards interest paid on the loan after the time the new estate, interest or property became security for the loan, the loan shall be treated for the purposes of sections 353 to 379 (other than this section and sections 357B and 357C) as if—
(a)it had been made at that time, and
(b)so much of it as was then outstanding and did not exceed the relevant amount had been used at that time to defray money applied in purchasing the new estate, interest or property.
(4)Subsection (5) below applies where either—
(a)the arrangement mentioned in subsection (1) above relates to two or more existing loans, or
(b)two or more security substitution arrangements take effect at the same time in connection with the purchase of the new estate, interest or property.
(5)As regards interest paid on the loans after the time the new estate, interest or property became security for the loans, the loans shall be treated for the purposes of sections 353 to 379 (other than this section and sections 357B and 357C) as if—
(a)they had been made at that time, and
(b)they had been used at that time to defray money applied in purchasing the new estate, interest or property;
but in any case where at that time the aggregate of the amounts of the loans outstanding exceeded the relevant amount, the loans shall be treated as mentioned in paragraph (b) above only to the extent that the aggregate did not exceed the relevant amount.
(6)For the purposes of this section the relevant amount is—
(a)where there is no loan falling within subsection (7) below, an amount equal to the purchase price of the new estate, interest or property;
(b)where there is one loan falling within that subsection, an amount equal to the difference between the purchase price of the new estate, interest or property and the amount of that loan;
(c)where there are two or more loans falling within that subsection, an amount equal to the difference between the purchase price of the new estate, interest or property and the total of the amounts of those loans.
(7)A loan falls within this subsection if—
(a)it is at the relevant time, or was before the relevant time, actually used to any extent to defray money applied in purchasing the new estate, interest or property, or
(b)by virtue of an earlier security substitution arrangement, it is treated to any extent as if before the relevant time it had been used to defray money so applied;
but a loan does not fall within this subsection unless interest on the loan is eligible for relief under section 353 [F2by virtue of section 354] .
(8)For the purposes of subsection (7) above the relevant time is the time when under the arrangement mentioned in subsection (1) above the new estate, interest or property becomes security for the existing loan or loans.
(9)This section does not apply in relation to a security substitution arrangement if, as regards the new estate, interest or property—
(a)there is at least one loan falling within subsection (7) above, and
(b)the amount of that loan or (if there is more than one) the total of the amounts of those loans is the same as the purchase price of the new estate, interest or property.
(10)For the purposes of subsections (6) and (9) above the amount of a loan is its amount when made, except that where—
(a)a loan falls within subsection (7) above by virtue of the fact that it is or was partly used to defray money applied in purchasing the new estate, interest or property, or
(b)a loan falls within that subsection by virtue of the fact that it is treated as if it had been partly so used,
the amount of the loan shall be taken for the purposes of subsections (6) and (9) above to be the amount of the part so used or (as the case may be) treated as so used.]
Textual Amendments
F1Ss. 357A-357C inserted (27.7.1993) by Finance Act 1993 (c. 34), s. 56
F2Words in s. 357A(7) substituted (with effect in accordance with s. 42(3)-(5) of the amending Act) by Finance Act 1995 (c. 4), s. 42(2)(d)