Section 106 Mortgage Advice

Are you considering purchasing a property with a Section 106 agreement and feeling overwhelmed by the complexities of the mortgage process? Fear not!

Here, we will demystify Section 106 mortgages and guide you through the entire process, from understanding the role of local authorities and covenant restrictions to navigating mortgage options and legal considerations. Get ready to unlock your options for a Section 106 mortgage and secure your dream home.

What are Section 106 agreements & how could they affect your mortgage application?

Section 106 agreements are legal documents that often accompany planning permission for property developments. They include various planning obligations for developers, such as providing affordable housing and infrastructure improvements for the local community. However, these agreements also come with restrictive covenants, which can impact property sales and mortgage eligibility.

To secure a mortgage for a Section 106 property, it’s essential to understand the role of local authorities, covenant restrictions, and how they influence your mortgage options. Let’s delve deeper into these aspects.

The role of local authorities

Local authorities play a critical role in the creation and implementation of Section 106 agreements.

They collaborate with developers to set the conditions and requirements for obtaining planning permissions, which often include affordable housing provisions, infrastructure improvements, and community benefits. To ensure a local connection for residents, local authorities work closely with lenders to guarantee that the terms of the Section 106 agreement are appropriate for mortgage purposes.

By fostering cooperation between developers, lenders, and the community, local authorities contribute to the creation of sustainable, well-connected neighbourhoods.

Covenant restrictions

Covenant restrictions in Section 106 agreements can significantly impact property sales and mortgage options. These restrictions may include provisions regarding:

• The sale of the property

• Occupancy limitations

• Resale price covenants

• Salary restrictions

Consequently, it’s important to understand the covenant restrictions associated with a Section 106 property to ensure its mortgageability and resale value.

A cascade mechanism within the Section 106 agreement allows for a gradual relaxation of restrictions if they impede property sales in the open market. Mortgage brokers experienced in Section 106 properties can help borrowers navigate this process, ensuring that the property remains an attractive and viable option for potential buyers.

Can you get a mortgage on a Section 106 property?

Yes. This is absolutely possible but there will be additional criteria to meet for properties with a Section 106 in place and some lenders may be offput by the added complexity.

One of the main benefits of Section 106 properties is that they are often available below market value.

Read on to find out more about the additional criteria and considerations for these properties, what your options are and how a broker can help you out.

Your mortgage options

When it comes to financing a Section 106 property, there are two main avenues: mainstream lenders and specialist lenders. Both options come with their own criteria and restrictions, influenced by the covenant restrictions of the Section 106 agreement. Understanding the differences between these lenders is crucial for securing a mortgage that suits your needs.

Let’s explore the mortgage options provided by mainstream and specialist lenders, and how they cater to the unique requirements of Section 106 properties.

Mainstream lenders

Mainstream lenders, such as banks and building societies, may offer mortgages for Section 106 properties. However, they often have more stringent requirements due to covenant restrictions. This can make it difficult for some borrowers to secure a mortgage from a mainstream lender.

If you’re having difficulty obtaining a mortgage from a mainstream lender, don’t be discouraged. Working with an experienced mortgage advisor will allow you to explore your options with specialist lenders.

Specialist lenders

There are specialist lenders that provide tailored mortgage options for Section 106 properties. They have an in-depth understanding of the unique requirements and restrictions of these properties, allowing them to offer financing solutions that meet the needs of buyers.

Specialist lenders often have more flexible lending criteria compared to mainstream lenders, making it easier for borrowers to secure a mortgage.

When applying for a Section 106 mortgage with a specialist lender, the process is similar to that of a mainstream lender. You’ll need to provide the necessary documentation, such as proof of income and credit history, and the lender will evaluate your ability to repay the loan. However, it’s essential to research and compare specialist lenders’ terms and conditions before applying - our team can help with this.

Which lenders are available?

Not all mortgage lenders will accept applicants who are buying a property with a Section 106 agreement in place. Providers such as NatWest, Accord Mortgages and Pepper Money will decline outright but the good news is that there are lenders available.

Below you will find examples of the willing lenders and some of their criteria:

• TSB: Will consider lending but applicants are advised to apply through a broker.

• Barclays: Will consider lending but has deposit requirements of 15-20% and states that the property must be the applicant’s main residence, among other caveats.

• Nationwide: Will consider lending but states that applicants cannot purchase these properties through the Right to Buy scheme among its caveats.

• Halifax: Will consider lending but places additional scrutiny on the covenants in place, specifically around the property use and types of occupant permitted.

All lenders who offer Section 106 mortgages tend to list a wide range of terms and conditions that you won’t find for other property types - speak to a broker for a full breakdown of what to expect and advice on which lender to choose.

The mortgage application process

Embarking on the mortgage application process for a Section 106 property can be a daunting experience. To alleviate stress and ensure a smooth process, work with a mortgage broker who can guide you through the intricacies of Section 106 agreements.

Deposit requirements

Due to the restrictive covenants of Section 106 agreements, deposit requirements from mainstream lenders are typically higher, around 20%. You may find that specialist lenders require a smaller deposit.

How a mortgage broker can help

Working with an experienced mortgage adviser can help immensely in the Section 106 mortgage application process. They assist borrowers in locating lenders who offer mortgages for Section 106 properties and provide guidance on navigating the specific requirements and conditions associated with these agreements.

By working with expert mortgage brokers like us, you can access a wide range of mortgage options tailored to your needs, boosting your chances of approval.

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Legal considerations

When considering a Section 106 mortgage, it’s important to be aware of the legal considerations involved. These include seeking independent legal advice to understand the implications of the Section 106 agreement on property sales and mortgages, as well as involving estate agents in the process to ensure compliance with covenant restrictions.

Let’s explore these legal considerations and their significance in the Section 106 mortgage application process.

Independent legal advice

Independent legal advice is helpful in understanding the implications of Section 106 agreements on property sales and mortgages.

A legal professional can help you navigate the complex conditions and obligations of the agreement, helping you to gain a comprehensive understanding of the legal aspects of purchasing a Section 106 property and safeguard your interests.

Selling and renting Section 106 properties

Selling and renting Section 106 properties present unique challenges and requirements due to the restrictive covenants and obligations associated with these properties.

Selling your property

When selling a Section 106 property, you must comply with covenant restrictions and often involve local authorities in the process.

Letting it out

Renting out a Section 106 property may require council permission and this is sometimes prohibited under the provisions of the agreement. Additionally, Section 106 properties typically cannot be used for holiday lets or short-term rentals.

Key takeaways on Section 106 mortgages

In conclusion, understanding the intricacies of Section 106 mortgages is crucial for securing a mortgage and navigating the property market.

Section 106 agreements refer to planning obligations imposed on property developments by local planning authorities.

These obligations can impact the process of buying, selling, and maintaining a property. The agreements are essentially restrictive covenants set by the local council, with the intent of regulating the use and development of land in specific ways. It's important to note that the restrictions and obligations under Section 106 agreements can vary significantly based on the specifics of the development and the requirements of the local planning authority.

How we can help

Mortgage brokers like us play a crucial role in navigating these agreements when buying a property.

They offer expert advice and help buyers understand the implications of Section 106 on their potential purchase. Consulting with a knowledgeable mortgage broker is advisable to fully grasp the intricacies of the agreement and its impact on the mortgage process.

At Teito, our mission is to take the stress out of finding your perfect mortgage.

Get started here to get expert advice from a broker who specialises in Section 106 mortgages, apply online, and get your mortgage in principle certificate in just 5 minutes.