What Is A Section 106 Agreement & How Does It Affect Mortgages?

When buying a property, you may come across terms that are not familiar at first glance. One of these is a Section 106 agreement. While it sounds like complicated legal jargon, it can have a real impact on who can buy a property, how it can be sold in future, and whether a lender is willing to offer a mortgage.

At Key Mortgage Advice, our mortgage brokers can help you understand what a Section 106 agreement means in practice and guide you towards suitable mortgage options for your circumstances.

What Is A Section 106 Agreement?

A Section 106 agreement, (also known as an S106 agreement), is a legally binding planning agreement between a property developer and the local planning authority. Its purpose is to make sure a development contributes to the local area and helps manage the impact of new homes or buildings.

For example, a Section 106 agreement may require a developer to include affordable housing, provide public open space, contribute towards local infrastructure, or support services such as schools, roads, transport or healthcare facilities.

For buyers, the most important point is that some properties carry specific restrictions set out in the agreement. These restrictions may affect who can buy the property, whether the buyer needs a local connection, whether the property can be rented out, or how it can be sold in future.

Common Section 106 Restrictions That Can Affect A Mortgage

Not every Section 106 agreement causes mortgage problems. The key issue is the wording of the agreement and how it affects the property’s value, saleability and future use.

Why Can A Section 106 Agreement Affect A Mortgage?

When you apply for a mortgage, lenders assess the property as well as your personal finances. If the property is subject to a Section 106 agreement, the lender will want to understand whether the restrictions affect the property’s value, future demand or resale prospects.

From a lender’s perspective, the concern is usually risk. If the property could only be sold to a limited group of people, or if a future sale price is restricted, the lender may see the property as harder to sell if the mortgage could not be repaid.

That does not mean a Section 106 property is automatically unmortgageable. It simply means the agreement needs to be reviewed carefully, and you may need a lender that is comfortable with this type of property.

Our mortgage brokers in Preston, Garstang and Southport regularly help clients understand their mortgage options and avoid applying to unsuitable lenders.

Buying A Property With A Section 106 Agreement

If you are buying a home with a Section 106 agreement, ask for a copy of the agreement as early as possible. Your solicitor and mortgage broker will need to check the exact wording before you commit too far into the process.

You may need to confirm:

• whether you meet the local connection rules;
• whether the property must be your main residence;
• whether the home is sold at a fixed discount to market value;
• whether the council needs to approve you as a buyer;
• whether there are restrictions on selling or renting the property in future;
• whether the lender is comfortable with the resale and valuation terms.

This is especially important for first-time buyers, because Section 106 properties are often connected to affordable housing schemes. The lower purchase price can be attractive, but the restrictions need to be understood before you apply for a mortgage.

Selling Or Remortgaging A Section 106 Property

Section 106 agreements can also matter after you have bought the property. If you later decide to sell, the agreement may affect how the property is valued, who can buy it, whether the council needs to approve the buyer, and how long the property must be marketed before wider buyers can be considered.

If you are remortgaging, the new lender may review the Section 106 agreement even if your current lender accepted it when you first bought the property. This can make it important to check the restriction before applying for a new deal.

For support with switching lender, visit our remortgage advice page.

Does It Vary By Mortgage Type?

The impact of a Section 106 agreement can differ depending on the type of mortgage you are applying for.

• First-time buyer mortgages may be affected if the property is part of an affordable housing scheme with buyer restrictions, local connection rules or discounted market sale conditions.
• Buy to let mortgages may be harder to secure if the property must be used as the owner’s main residence or cannot be rented out.
• Commercial mortgages for mixed-use or development projects may involve planning obligations that influence funding options.
• Lifetime mortgages and later-life lending may be more cautious if future sale restrictions could affect long-term value.
• Remortgages are possible, but the new lender may need to review the agreement before approving the case.

Because every lender has different criteria, navigating these options alone can be difficult. Our experienced mortgage advisors provide clear, practical guidance so you can understand your choices across the full range of mortgage services.

Documents To Check Before Applying For A Mortgage

Before applying for a mortgage on a Section 106 property, it helps to gather the right information early. This can reduce delays and prevent you from applying to lenders that are unlikely to accept the property.

• a copy of the Section 106 agreement;
• details of any local occupancy or eligibility rules;
• resale price or discounted market value terms;
• any council approval process for future sales;
• details of whether the property can be rented out;
• confirmation from your solicitor about how the restriction affects the property;
• any estate agent or local authority guidance provided with the sale.

You can also use our mortgage calculator to get an initial idea of repayments before speaking to one of our advisors.

How Our Mortgage Brokers Can Help

Securing a mortgage on a property with a Section 106 agreement requires more than simply finding a lender willing to lend. It is about understanding the details of the agreement, assessing its impact, and matching you with the right lender for your needs.

Our award-winning team takes the time to review your situation and explain what the agreement means for your mortgage application. With access to a wide range of lenders, we can approach lenders that are more flexible with these cases.

Whether you are looking for a first-time buyer mortgage, a remortgage, or are exploring buy to let mortgages, lifetime mortgages or commercial mortgages, we can help you understand your options.

Working with us can also save time and stress, as we can help with lender communication and make sure your case is presented clearly.

Section 106 Mortgage FAQs

Can I Get A Mortgage On A Section 106 Property?

Yes, but the agreement needs to be checked carefully. Some lenders will consider Section 106 properties, while others may decline them depending on the restrictions. A broker can help identify lenders that are more comfortable with this type of property.

Why Do Lenders Worry About Section 106 Agreements?

Lenders are usually concerned about resale risk. If the agreement limits who can buy the property, caps the resale price, or requires council approval, the lender may see the property as harder to sell if it ever had to recover the loan.

Does A Section 106 Agreement Make A Property Unmortgageable?

No, not automatically. Some Section 106 properties are mortgageable, especially where the wording is clear and lender-friendly. Problems are more likely when the agreement has strict eligibility rules, unclear resale terms, or no suitable protection for the lender.

Can First-Time Buyers Buy Section 106 Homes?

Yes, many Section 106 homes are aimed at first-time buyers or eligible local households. However, you may need to meet specific criteria, such as local connection rules, income limits or main-residence requirements.

Can I Rent Out A Section 106 Property?

It depends on the agreement. Some Section 106 properties must be used as the owner’s main residence and cannot be rented out or used as a holiday let. This can make buy to let lending difficult or unsuitable.

Will A Section 106 Agreement Affect Selling My House?

It can. The agreement may restrict who can buy the property, how the sale price is calculated, or whether the council needs to approve the buyer. This can affect sale timescales and the size of the buyer pool.

Can I Remortgage A Section 106 Property?

Yes, but the new lender will usually want to review the Section 106 agreement. Even if your original lender accepted the property, another lender may take a different view.

What Documents Should I Get Before Applying For A Mortgage?

You should ask for a copy of the Section 106 agreement, any transfer documents, local authority eligibility rules, resale price details and any correspondence confirming how the restriction works. Your solicitor and mortgage broker can then review the wording before you apply.