You’re not alone on this one. A Section 106 restriction doesn’t automatically make a property “unmortgageable”, but it does narrow lender appetite because it can affect resale value and who the property can be sold to if the lender ever had to repossess.
In most cases, the route forward is to get absolute clarity on what the restriction actually says, then present it to the right lenders with the right legal wording in place.
What a Section 106 agreement is, in plain English
A Section 106 agreement is a planning obligation attached to a development. It’s commonly used to secure affordable housing, but it can also include restrictions around eligibility, resale price, local connection, or nomination rights for the local authority or housing association.
The important bit for mortgage purposes is this: some of those restrictions can materially affect value and marketability.
Why some lenders won’t lend
Lenders are mainly worried about “exit”. If they ever needed to sell the property to recover the debt, could they sell it quickly, to a wide enough market, at a predictable price?
Section 106 restrictions can reduce the pool of buyers. They can also cap the resale price, require the property to be offered back to a local authority/housing body, or impose eligibility tests on future purchasers. That doesn’t mean it’s impossible. It just means many mainstream lenders will default to “no” unless the paperwork and protections are very clear.
The type of restriction matters a lot
Two Section 106 properties can look similar but be treated very differently by lenders. These are the clauses that usually make the difference:
Resale price caps (discount market value / capped uplift).
If the resale price is restricted, the lender wants to understand how the cap is calculated and whether it’s predictable.
Local connection / eligibility criteria.
If only certain buyers can purchase, lenders look at how narrow that group is and how sales are handled in practice.
Nomination rights and pre-emption clauses.
If the property has to be offered to a council or housing association first, lenders want to know the timescales and whether a sale can still proceed if nominations fail.
Letting restrictions.
Some agreements restrict letting, which can remove fallback options if circumstances change.
The “mortgagee protection clause” is often the turning point
In many mortgageable Section 106 setups, there is a clause (sometimes referred to as a mortgagee protection clause) designed to protect a lender’s ability to sell the property and recover the loan in a repossession scenario.
If that protection is missing or weak, lenders can walk away. If it’s present and clearly drafted, lender options often improve.
This is one of the first things your solicitor should check, because it’s where “we can’t find a lender” often turns into “we can, but we need to approach the right lenders with the right wording”.
What to gather before you apply again
To avoid going round in circles, get the documents in one pack:
- the full Section 106 agreement (or the relevant schedule/extract that applies to your plot)
- any separate restrictive covenant wording on the title
- the planning decision notice and any affordable housing documents
- the developer’s sales pack, including how resale is intended to work
- confirmation of whether a mortgagee protection clause applies, and the exact wording
Once that’s clear, a broker can target lenders who are known to take a pragmatic view, rather than burning credit searches on lenders who will auto-decline.
Practical next steps
Start with the developer and your solicitor and ask two direct questions.
- “Exactly what restriction applies to this unit, and where is it written?”
- “Is there a lender protection clause, and if not, can it be added via a deed of variation or side agreement?”
Then speak to a broker with the document pack. With Section 106, the fastest route is usually “match the wording to the lender”, not “try ten lenders and hope”.
A final watch-out
Even where you get a mortgage now, the same restriction can affect resale later. It’s worth going in with eyes open on future saleability and timescales, because that’s the factor lenders are pricing and underwriting around too.
If you’d like to talk more about your situation, then please call 023 8235 2300 or submit an enquiry and we’ll put you in touch with one of our consultants.
