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Buying A Section 106 Property

Curious about how section 106 affects the purchase and sale of a property? Learn all about the clause and how you can buy a Section 106 property with the restrictions in mind.
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The process of buying a house usually comes with restrictions defined by the seller that the buyer must agree with to complete the sale.

That said, a clause known as “Section 106” applies to certain properties that have a set of caveats to the transfer of home ownership. 

When applicable, a Section 106 property can be purchased at a price lower than its market value, but not without a few conditions.

It’s no surprise that section 106 properties have seen a rise in recent years, with 39% of housing association homes being delivered in 2021-22. 

Naturally, knowing the benefits and downsides of buying a Section 106 property is essential before closing the deal on your chosen property. And that’s what we’re going to cover in this guide.

What Is Section 106 Agreement?

Section 106 primarily addresses property development and planning, with guidelines that dictate obligations for home developers to fulfil. 

These obligations can lead to more affordable housing, better infrastructure, and terms that directly affect the mortgageability of a house.

The section also restricts who you can buy the property from or sell it to. Its objective is to ensure that the property remains free of additional construction beyond what is specified in the agreement by the developer and local authority.

As is the standard with most heavy construction and renovation projects, the local authority has a significant part to play in the implementation of section 106. 

It is under their guidance that property builders proceed with a particular development plan, which results in the fulfilment of the section objective.

The local authority is also responsible for building trust among the locals and future residents of the property, ensuring sufficient collaboration among all parties involved. 

It works with lenders to make sure that the section does not affect the mortgageability of a home beyond what was specified in the initial plan.

Buying A Section 106 Property

People usually opt to purchase a section 106 property through a dedicated mortgage, which is somewhat more restricted than the standard homes market.

There are two ways of buying a Section 106 property through a mortgage: by consulting a mainstream lender or approaching a specialist lender. 

Both options offer unique deals and mortgage terms, understanding which can help you choose the more suitable option.

1. Mainstream Lenders

Mainstream lenders include banks and building societies, which are the organisations and groups you would approach for an ordinary mortgage. 

Because of the restrictions imposed by section 106, the mortgage terms offered by mainstream lenders tend to be more stringent than usual. 

You may have difficulties securing a suitable deal from such organisations, which makes the mortgage searching process an ordeal.

To make your mortgage-searching experience simpler, consider approaching experienced mortgage lenders. 

They will offer you a better chance of securing a favourable deal than a typical bank or building society.

2. Specialist Lenders

Specialist lenders cater to those seeking mortgages for a specific type of property, which is a section 106 property in this case. 

Their extensive knowledge of such properties, combined with experience in lending mortgages for them, makes them better suited to fulfil your needs as a buyer.

Such lenders understand the restrictions of a Section 106 agreement well, which is why their restrictions and mortgage terms tend to be more lenient. If you find these terms fitting, specialist lenders may be your best bet at securing the desired mortgage deal.

Further simplifying the matters is their application process, which is largely the same as a typical mortgage lender. 

Simply provide the lender with your proof of income, credit history and details of the property to get started. Once the lender assesses your financial situation and ability to repay the loan, they will approve the mortgage.

Of course, like with any mortgage lender, be sure to compare their mortgage terms and rates with other specialist lenders on the market. This can help you ascertain that the deal you are about to close is the best on the market.

Restrictions Of A Section 106 Property

Section 106 restricts modifications, occupancy and sale of the property in a few different ways, which has a direct effect on its future on the market. 

The section may also limit occupancy and impose a salary restriction on the buyer for them to qualify for purchasing the property.

These restrictions are for the benefit of local families who may have difficulties affording a property because of their exceedingly high prices. 

Limitations like occupancy limits may only be imposed during certain times of the year, beyond which it may not be used for residential purposes.

Something that may be a boon for first-time buyers but a caveat for sellers is the resale price covenant, which is a part of section 106. 

It states that a property must be sold at a discount to first-time buyers, which can lead to major savings for the buyer. 

Do note that this covenant and several others are not universally applied, so be sure to check the property details before purchase.

Of course, these limitations are placed upon a property upon local agreement, which makes the section more flexible across the nation. 

This lack of a standardised set of restrictions is why some mortgage providers avoid lending money for Section 106 houses.

Deposit Requirements for Buying A Section 106 Property

Generally, section 106 properties require 20% of the property value as a deposit, which is quite close to standard mortgage rates.

Where they differ is the value of the property itself, which may be lowered for first-time buyers of section 106 properties, ultimately making them more cost-effective.

The deposit requirement also depends on the lender type, as mainstream lenders may demand a higher amount upfront or through interest rates

Specialist lenders, on the other hand, have no such requirements and will only ask for an amount that is close to the standard rate.

Am I Eligible To Buy A Section 106 Property?

Whether you are eligible to buy a Section 106 house or not depends on the agreement created by the property seller.

Usually, it comes with three main requirements: locality, housing needs and property use. The seller may add or subtract clauses from the agreement as necessary.

1. Locality

To qualify as a buyer of such properties, you must have lived in the area for at least three years. Alternatively, you must work at a stable job or have a firm job offer that requires over 16 hours per week in the parish.

2. Housing Need

The seller may assess your ability to buy the house based on your income, savings, equity in current properties, wages, and mortgage ability. How urgently you need the property plays a role in your eligibility as a buyer of a Section 106 property. 

3. Property Use

Section 106 agreements require you to use the house as your principal residence. If you purchase a second home, buy-to-let, or holiday let, you can’t buy a Section 106 home.


1. Is getting a Section 106 mortgage difficult?

Getting a Section 106 mortgage is not as difficult as it used to be, but it is still relatively tricky. Finding a specialist lender is the most complicated part of the process and likely the only part that requires extra effort.

2. Is it possible to get a section 106 mortgage with bad credit?

Getting bad credit section 106 mortgages is difficult but doable. You can rule out using mainstream lenders entirely and rely on specialist lenders with experience in bad credit loans.

Final Words

Buying a Section 106 property can be made easy with the help of a specialist lender with plenty of experience.

Such properties are heavily restricted as far as future resale prospects, additions or redecorations are concerned, but they can be good options for first-time buyers. Their low price point and generally hassle-free application process make them attractive for many.

And while being mindful of the restrictions may seem like a handful, it should be no trouble at all so long as you read the agreement thoroughly.

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.

Our goal is simple - to provide most up-to-date and accurate mortgage information to make your mortgage journey as stress-free as possible. Have a question? Fill up the quick form and one of our mortgage advisor will connect with you.

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