Section 106 Agreement

Answered on 27 January 2019 by Nick Morrey

We are trying to secure a mortgage on a build with 106 attached and cannot find any lender who will do this. Can you help?

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.

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.

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.

Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.


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