DTI refuses to leave RSLs out of new insolvency law

Future lending to housing associations has been thrown into doubt by the refusal of the Department of Trade and Industry to amend new legislation so that housing associations are excluded from insolvency laws.

This is understood to have happened because the DTI wants to ensure the controversial Enterprise Bill passes through the House of Lords before the summer recess.

The decision means that if the bill goes through the Lords in its present form, most registered social landlords will be included in the insolvency section because they are registered as industrial and provident societies. Lenders will therefore be denied their present powers to appoint their own administrative receivers in the event of an RSL failing.

Lenders are now set to re-evaluate the conditions of loans to RSLs so as to protect their investments. Andrew Heywood, senior policy adviser at the Council of Mortgage Lenders, said: "The bill has become of far greater concern. Our members will have to take an increase in asset cover and pricing security."

The decision has sent shockwaves throughout the sector. The National Housing Federation, the Housing Corporation and the Council of Mortgage Lenders had been confident of convincing the DTI that the bill had potentially catastrophic implications.

Now National Housing Federation chair Richard McCarthy has sent a strongly worded letter to deputy prime minister John Prescott and DTI minister Melanie Johnson in protest.

The DTI wants to ensure the controversial bill passes through the House of Lords before the summer recess

In the letter, seen by Housing Today, McCarthy says efforts to reduce homelessness through the provision of affordable homes and to meet the decent homes target would be "seriously jeopardised" as a result of the DTI's decision.

The letter continued: "If the bill is enacted as currently drafted, many housing associations face serious and unfavourable changes to existing lending terms."

A DTI spokeswoman said: "The bill contains the power to extend the provision of industrial and provident societies at some point in the future. This would only take place after a proper consultation with all stakeholders."

Liz Potter, policy director at the National Housing Federation, said: "The DTI has said there will be subsequent consultation, but this will be too late for the lenders. It will have the effect of increasing the cost of housing."

It is possible that continued lobbying could change the bill on its way through the House of Lords, however.