Mortgages For Section 106 Properties

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Author: Elliott Culley - Director & Mortgage Adviser of Switch Mortgage Finance

A Section 106 mortgage is usually required for properties with ‘restrictive covenants’ in place which include certain caveats when buying the property. These restrictions have usually been agreed with the local authorities and developers before construction of the property.

The idea is to make properties available to people that may have otherwise struggled to obtain a property. Not all mortgage lenders offer mortgages for section 106 properties. As a result you will need to find a lender specialising in this type of property.

What is a Section 106 Agreement?

Section 106 Agreements can be made between developers and Local Authorities to ensure affordable housing (discount market sale) is included in any development project in order to benefit the local community. They can also restrict the type of borrower, for example, to someone who is local to the area or it may have certain age restrictions.

A Section 106 property is subject to a legally binding agreement that intends to make housing affordable in the local area. As part of this, there are likely to be strict regulations as to how the property can be sold. 

Can you get Mortgages on Section 106 Properties?

Yes, it’s possible. There are lenders specialising in mortgages for section 106 properties. The right lender for you will depend on your personal circumstances and the type of covenant covered by the section 106 agreement.

Why is it More Difficult to Get Mortgages on Section 106 Properties?

The main concern for mortgage lenders is the resaleabilty of the property if they had to repossess the house. The lender will want little to no barriers in trying to sale the house. Most lenders would require the restriction to be lifted if they had to sell the property. As a result mortgage lenders ask for certain caveats when considering a property with a section 106. Most lenders will ask for a mortgagee exclusion clause to be added. Our job as a mortgage broker is to find a mortgage lender who can help you purchase the property.

Speak to an Expert!

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Contact us today for expert advice and guidance on your unique mortgage and property needs. We will work with you on a one-on-one to basis to help you find the right solution for your needs.  

With our experience you can rest assured that you are in good hands when it comes to securing the financing you need for your property.

What Do Mortgage Lenders Require?

In most cases mortgage lenders will be happy if there is a mortgagee exclusion clause in place. This would allow the lender to sell the property free of any restriction in the event of repossession.

Some mortgage lenders could ask that any restriction must only apply to the first transaction and the restriction must not apply to any subsequent future transaction.

What are the Benefits of a Section 106 Property?

The restrictions on a Section 106 property are often put in place to ensure that, wherever possible, it is sold to the right type of buyer as agreed prior to construction by the developer and local authority.

A section 106 is designed to help people afford suitable homes for their circumstances. It can provide affordable housing for some that otherwise wouldn’t be able to obtain a mortgage. It can be extremely helpful for first time buyers. 

mortgages for section 106 properties. Switch mortgage finance.

How Much Deposit Do You Need?

You are in a stronger position and will have access to more mortgage lenders, with better rates if you have a higher deposit of around 15%. However, there are some lenders who specialise in this type of property and will allow a higher deposit.

Can I Get a Section 106 Mortgage with Bad Credit?

Yes it is possible to get a mortgage even with bad credit. It would completely depend on the severity of the bad credit, and your current position. It is always worth enquiring to see what your options are. 

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