Are there any mortgage providers who will lend money to properties with a Section 106 agreement?

While it may be more challenging to secure a mortgage for a property with a Section 106 agreement, it's not impossible. Section 106 agreements, also known as planning obligations, are legal agreements made between developers and local planning authorities as part of the planning process for a development. These agreements typically require the developer to provide certain community benefits or infrastructure improvements as a condition of obtaining planning permission. 

What Is A Section 106 Agreement? 

A Section 106 agreement is a planning obligation placed on a development by the Local Authority and is most commonly used to ensure that the development meets local and national requirements for affordable housing. However, they may also cover other situations such as the improvement of the local transport network. 

Planning Obligations are used for three purposes: 

• Prescribe the nature of development (for example, requiring a given portion of housing is affordable) 
• Compensate for loss or damage created by a development (for example, loss of open space) 
• Mitigate a development’s impact (for example, through increased public transport provision).  

How Does A Section 106 Agreement Affect Getting A Mortgage? 

Local authorities, in their planning agreements, often attach conditions to the way these houses can be sold through what are known as ‘section 106 agreements’ or ‘restrictive covenants’. Buyers should be made aware of these when they buy a new property or when a property changes hands. 

The Council of Mortgage Lenders issue standard instructions to solicitors on behalf of its members and among these is the following clause: 

"5.3.5 If the property will be subject to any enforceable restrictions, for example under an agreement (such as an agreement under section 106 of the Town and Country Planning Act 1990) or in a planning permission, which, at the time of completion, might reasonably be expected materially to affect its value or its future marketability, you should report this to us." 

Such restrictions may make it difficult for a lender to achieve a sale should they repossess the property and for this reason it can give rise to difficulties in obtaining a mortgage. However, I would normally expect you to be able to secure a mortgage, albeit from a smaller choice of lenders. 

Here are some factors to consider when seeking a mortgage for a property with a Section 106 agreement: 

1. Specialist lenders - some mortgage lenders specialise in financing properties with unique circumstances, such as those with Section 106 agreements. These lenders may have experience navigating the complexities of such agreements and may be more willing to consider mortgage applications for these properties 
2. Research - conduct thorough research to identify mortgage lenders who have experience dealing with properties subject to Section 106 agreements. At John Charcol we can help you find suitable lenders and guide you through the application process  
3. Loan-to-value ratio - the loan-to-value (LTV) ratio, which represents the amount of the mortgage loan compared to the property's value, can be a critical factor for lenders. Properties subject to Section 106 agreements may have restrictions or conditions that affect their market value, potentially impacting the LTV ratio. Lenders may be more conservative in their lending criteria for these properties  
4. Legal review - before proceeding with a mortgage application, it's essential to review the terms of the Section 106 agreement and understand any implications for the property and its use. Seek legal advice to ensure you fully understand your rights and obligations as a property owner subject to the agreement 
5. Patience and persistence - securing a mortgage for a property with a Section 106 agreement may require patience and persistence. Be prepared to provide detailed information about the agreement and the property to potential lenders and work closely with professionals who can assist you throughout the process  

While obtaining a mortgage for a property with a Section 106 agreement may present challenges, with careful research, preparation, and assistance from knowledgeable professionals, it is possible to find lenders willing to finance such properties. 

I recommend that you get full details of the restriction from your local planning office or the developer and speak to an independent mortgage adviser about your requirements. 

If you'd like to talk more about your situation, then please call 0330 433 2927 or submit an enquiry and we'll put you in touch with one of our consultants.