Section 106 Agreement and Mortgages: What You Need to Know

A more affordable home could be within your reach. 

If you’re considering buying a Section 106 property, you’ve probably noticed they come with some unique rules. 

But don’t let that put you off—these homes are designed to help local buyers get a foot on the property ladder. 

This guide gives you a complete rundown of what to expect—everything from the Section 106 agreement to securing a mortgage. We’ll explain the process clearly, so you can focus on finding your new home without any added stress.

What Is a Section 106 Property ?

A Section 106 property is a home subject to an agreement under Section 106 of the Town and Country Planning Act 1990. 

This agreement sets rules between the developer and the local authority to keep the property affordable for specific groups, like local families or key workers. 

The aim is to ensure the property remains accessible to those who need it most.

It’s great because these homes are often cheaper than other homes on the market. The downside is that buying a Section 106 property can be a bit more tricky. 

But that’s where we come in to help you.

Who Can Buy a Section 106 Property?

To buy a Section 106 property, you need to meet certain criteria. 

As we’ve talked about, the rules are there to make sure these homes go to people who need them most, like local residents or key workers. 

Here’s what you need to know:

• Local Residents: Usually, you’ll need to have lived in the area for a few years to qualify. This helps keep affordable homes available for local people.
• Key Workers: If you’re a nurse, teacher, police officer, or another essential worker, you might be eligible. Some Section 106 properties are specifically set aside to support key workers.
• First-Time Buyers: Many of these homes are aimed at first-time buyers to help you get on the property ladder without the hefty price tag.
• Income Requirements: Your income might need to be below a certain level to qualify. This is to ensure these homes remain accessible to people who need them most.
• Job in the Area: If you work in the local area but don’t currently live there, you might still qualify, especially if the council wants to encourage people to live closer to their jobs.

Every Section 106 property has its own rules. It’s best to check with the local council or your mortgage broker to see if you can buy it.

Can You Get a Mortgage for a Section 106 Property?

Yes, you can get a mortgage on a Section 106 property. But it might not be as simple as walking into your usual high street bank. 

Not all lenders are jumping for joy at the idea of financing these properties because of the restrictions that come along with them. 

Covenant restrictions when buying a Section 106 property:

• Only specific buyers, like local residents or key workers, can purchase.
• Must be sold at a discount, usually to first-time buyers.
• Can only sell to certain groups, limiting who can buy next.
• Restrictions on renting out the property, especially for holiday lets or Airbnb.
• May have time-limited occupancy, such as only allowing part-time living (e.g., holiday homes).
• Some properties are tied to certain jobs, like farming, limiting potential buyers.
• Some covenants last indefinitely with no clear expiration, causing uncertainty for lenders.
• No flexibility in selling if the property stays on the market for a while.

Many lenders are hesitant to finance these properties due to these restrictions. Some banks like Halifax and Nationwide may lend on Section 106 properties, but they often need a bigger deposit or stricter conditions.

However, all hope is not lost. 

There are specialist mortgage lenders who understand Section 106 properties well and can offer more flexible deals.  These lenders usually don’t advertise their deals publicly, so the best way to reach them is through a specialist mortgage broker.

How Much of a Deposit Do You Need?

Section 106 mortgages usually require at least a 20% deposit, which can seem high compared to standard mortgages. 

This is because lenders see these properties as a bit risky—there are limits on who you can sell to and at what price, which makes them worry about getting their money back.

The good news is that these properties are often priced below market value, so you might need less money overall. 

If you’re buying a home that’s 20% cheaper than average, even with a higher deposit percentage, the total amount you need could still be more manageable.

What Are The Benefits of Buying a Section 106 Property?

Here are some of the key benefits:

• Lower Price. Section 106 properties are usually sold below market value, which makes them more affordable compared to regular homes. This can help you get on the property ladder without breaking the bank.
• Community Focus. These homes are meant for local residents or key workers, so they help keep housing affordable for people who are part of the community. If you’re already living or working in the area, you may have a better chance of buying one.
• Less Competition. Since there are restrictions on who can buy, there’s often less competition for these properties. This can make the buying process a bit less stressful compared to regular homes, where bidding wars can drive up prices.
• Great for First-Time Buyers. The affordability factor and the restrictions on resale can make these properties ideal for first-time buyers who want a stable home without worrying about huge price hikes.

If you’re eligible, buying a Section 106 property can be a fantastic way to secure an affordable home in an area you love. 

Sure, there are some restrictions, but the potential savings and the chance to be part of a supportive community can make it well worth it.

Are There Any Downsides?

Of course, it’s not all sunshine and rainbows. There are a few downsides to consider before you dive into buying a Section 106 property:

• Resale Limitations. If you want to move in a few years, you may have to sell at a reduced price, which could mean less profit.
• Local Authority Approval. Renting it out isn’t as straightforward as usual. You’ll need council permission, and they might only approve it for a short-term rental.
• Finding the Right Lender. As mentioned, not every bank will be thrilled about giving you a Section 106 mortgage. You might have to dig a bit deeper or work with a broker to find a lender that’s up for it.

That said, if you’re planning to buy the property as your main home and are okay with the idea of selling at a discount down the line, then these downsides might not be a big deal.

Changing Your Section 106 Agreement

If you end up in a situation where the restrictions are holding you back—maybe you want to remortgage, or the original terms are outdated—you do have options. 

It’s possible to get your Section 106 agreement changed. But you’ll need to go through your local council, pay some legal fees, and possibly get a solicitor involved.

If the agreement is more than five years old, your local council is more likely to agree to changes, especially if the original terms don’t really fit your current situation.

All you need to do is send a formal application to the council and explain why the agreement isn’t working for you anymore. It could be limiting your mortgage options or just no longer relevant. 

The council might agree to update the agreement to make it more “lender-friendly,” which can open up more mortgage options.

It’s a good idea to speak to a solicitor, as there may be some legal costs involved. They can guide you through the process and help get things sorted.

Keep in mind, this isn’t a quick fix, so if you’re planning to sell or remortgage, start early to avoid delays later on.

The Bottom Line

If you want an affordable home and don’t mind the rules, a Section 106 property could be a good choice. It might take a bit longer to buy, but you’ll save money. 

A whole-of-market mortgage broker can help you with the process. Here’s how they can help you:

• Find the best mortgage deals from specialist lenders for Section 106 properties.
• Clarify the restrictions and ensure you meet the eligibility criteria.
• Handle all the paperwork and submit everything on time, making the process easier.
• Connect you with the right lenders, improving your chances of approval.
• Save you time by researching and applying to suitable lenders on your behalf.
• Guide you on the necessary documents and how to approach lenders.
• Secure better mortgage terms, including interest rates and deposit requirements.

Your time and effort are important, so why not make things easier? 

Get in touch with us today, and we’ll connect you with an expert mortgage broker who knows the ins and outs of Section 106 properties.