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Buying a Section 106 property

How to get a section 106 mortgage

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 18th October 2019 *

We get lots of queries from customers looking to take out a mortgage on a Section 106 property, many of whom have had little or no luck in finding a willing lender. This relatively common piece of planning legislation has led to numerous affordable housing schemes being set up around the UK, but it can still cause some headaches when you come to apply for a mortgage.

Fortunately, there is a growing pool of lenders offering Section 106 mortgages, as this type of agreement becomes more widespread and better understood. For the right advice we recommend you speak to an expert who can help you get to the best deals. 

The advisors we work with know the right lenders to approach and have a whole of market overview, so they are well placed to help. Call us on 0808 189 2301 or make an enquiry online if you’d like to be referred to an advisor with Section 106 experience. 

In this article, we will explore:

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Buying a Section 106 property

Buying a house under section 106 means that the property in question has a type of ‘restrictive covenant’ in place, which is a legally binding contract usually set by the local council to facilitate an affordable housing scheme. 

What this means for you as the buyer is that ownership is subject to certain caveats, for example you may only be eligible to buy the property if you live or work within a certain radius, and that your earnings don’t exceed a certain threshold. Some are limited to certain profession types such as ‘key workers’. One of the most common examples is a “re-sale price covenant" which usually means if the property is sold to a first time-buyer it must be done at a discount.

In exchange, you’ll often be allowed to buy the property at less than market value: S106 is often used in areas where property is expensive, as it can be used to help buyers on to the ladder. 

Why can it be hard to get a Section 106 mortgage?

You’re likely buying such a property precisely because you match certain criteria, and may have found the ideal property at a great price, so you’ll already be well aware of the Section 106 restrictions that apply in your case. 

However, for the lender, there are a lot of variables to consider as each local authority may do things slightly differently which adds complexity to the process, and some may be put off by concerns about the impact on resale value.

For this reason, mortgages for section 106 homes can be harder to come by, and you may find that lenders who will approve your application want a larger than average deposit and/or higher interest rates. 

Provision of these products is slowly improving with more high street lenders getting on board, but it still makes sense to speak to one of the specialist advisors we work with who can help you to find the most favourable deals from across the market. 

What deposit do I need for a section 106 mortgage?

If you’re planning on buying a section 106 house and want to know how much you’ll need to save as a deposit, it’s worth noting that most lenders offer to mortgage up to 85% of a property, some to 90% and a few even higher. 

However, due to the slightly smaller pool of lenders willing to offer mortgages for section 106 properties, deposits tend to come in at the higher end of this scale, and some will require a deposit of 20% or more depending on your overall risk profile as a borrower - one of the expert brokers we work with can help you  find the best deal for your circumstances, as there are more lenders coming into this market all the time, but not all are on the high street. 

What section 106 mortgage can I afford?

All lenders have their own policy on calculating affordability and will take a variety of factors into account, but most cap lending at 4.5 x your income, some 5 x and a few up to 6 x your annual earnings. They also vary on what they will count as income, with some accepting self-employed borrowers and others insisting on a standard PAYE salary. 

Many of those applying for section 106 affordable housing mortgages are doing so on a tight budget, and will want to find a lender with a generous approach to calculating affordability - but don’t forget this will mean higher repayments and putting down more for a deposit, too. 

Can I get a section 106 mortgage with credit issues?

Instances of bad credit, such as late payments, missed payments, mortgage arrears, IVAs and bankruptcy are all taken into account by the lender when they assess your overall risk profile as a borrower and will be factored in to their decision on whether to lend to you as well as how much and on what terms. 

Each lender will have its own policies, so while one may insist on a flawless credit history, another may accept borrowers with a number of adverse events on their file. 

Can I get a mortgage on a unique property with section 106?

Many homes that are subject to section 106 legislation are new-build properties, and while the majority of these will be of standard construction, a few are now being built with more unusual materials such as timber frames

Having non-standard building features can make it harder to find a willing lender, and could further narrow the pool of lenders that will consider your application. 

Each lender takes a different view on which features they will or won’t accept, so it’s always worth consulting an expert with knowledge of the lender’s policies. For more information, see our non-standard property section.

Section 106 mortgage lenders

The number of lenders offering mortgages for section 106 is growing all the time, but is still limited to a handful of lenders and we strongly advise speaking to a specialist broker who can steer you towards the most suitable lenders and products, particularly if you have any other issues such as adverse credit or a non-standard property type. 

Speak to an expert on Section 106 mortgages today!

If you want to know more about your mortgage options when buying a section 106 property and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 18th October 2019
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.