Section 106 Affordable Housing- who will lend?

tigthepig

Hi everyone.

Several weeks ago my partner and I began the arduous process of attempting to purchase an affordable new build property (subject to a section 106 agreement- it is freehold, not shared ownership- we would own 100%). After credit checks, valuation, and a formal mortgage offer from the Halifax they retracted/revoked the mortgage offer.

We were gutted to say the least and have done everything to try and find out why. Halifax aren't saying anything (so we've lodged a complaint and are attempting to discover what info they hold about us under the freedom of info act).

However, having spoken to a new broker/financial advisor (our original broker-who co-incidentally dealt with the sales of the the majority of the other properties on the development- hasn't been very forthcoming) and our conveyancer (who also dealt with the sales on the rest of the development), the consensus is that the Halifax have an issue with 'density'- as they are currently lending on 75% of the properties on the development. Apparently they usually prefer a density of a maximum of 50%.

My peeve here is that our county council told the developer that only the Halifax will lend on the properties! Presumably this is because of the restrictions on the 106. So quite why they haven't identified this 'density' problem as an issue is beyond me (the development has planning for eight properties so far, with a long term view of up to 24). Surely the 106 needs to be such that it is acceptable to more lenders?!

My questions are:

Has anyone ever heard of 'density' being a problem for lenders?

Why would only Halifax be happy to lend? Are they usually more accepting of 106's? Are there restrictions that they would accept that other lenders will not?

Our broker has attempted contacting other lenders such as Santander to no avail, are others worth trying, eg Nationwide?

Is there any chance we can get the 106 adapted to be more acceptable to more lenders if this is the root of the problem?

Is it ok for us to take a copy of the s106 agreement along to some high street banks to grasp their opinion?

Any ideas are appreciated Many thanks.

Mrs_Arcanum

It is very unusual to have more than 50% of the properties as affordable which is were the problem may lie. Having so many affordable properties as part of the S106 the developers would potentially be out of pocket. So the Halifax & the buyers may soon have problems if there is a building fault trying to get things rectified by a bankrupt builder.

tigthepig

Thanks Mrs Arcanum,

That is a very good point. As far as we have been made aware, all of the properties on the site are affordable. We assumed this to be due to the location (green-field site/green-belt- I also believe it may be within a world heritage area). Most other developments certainly do seem to have a small percentage of affordable properties, with the majority at open market value. And most are shared ownership- I cant say Ive seen any low cost purchase in our area before.

The build has been staged, with an initial four properties having received planning consent, been built and now sold. The one we want is on a newer planning consent for four properties, two of which have been built. We believe that the builder is only buying the land in stages as well. As i mentioned the long term plan is for up to 24 properties, so I'm not sure if any of these will be at open market value.

Thanks for your response Mrs Arcanum, its raised a number of really good questions I think we need to take to the developer

kingstreet

As mentioned in the other thread, lenders don't like to be over-exposed on any development and would normally not pass 50% whether it's social, affordable or "normal" fully-owned.

SouthCoast

Could it be that the Lloyds Banking Group is trying to reduce its exposure to this developer by every means possible?

tigthepig

Being first time buyers we'd never come across problems such as lenders having caps on how much of a development they'd lend on. But its easy to understand where their coming from, it does make sense that they wouldn't want too many eggs in one basket as it were.

Still, I find it odd that the council seem to have not noticed this would be a massive issue for the developer, as if only one lender is available, and that one lender will only lend on 50% of a development, effectively only half the properties are mortgageable?!

Hopefully we'll be able to speak to someone at the council over the next few days and get some clarification on the stipulations of the s106 (the document itself is all very legal, full of definitions and seemingly lacking any understandable content), so hopefully identify whats putting the usual s106 lenders off.

zeddeebee

Wondering how you got on? Looking to fund a S106 self-build myself and make a start as soon as possible.

eeeeebbbbbb

I too would be very interested to know how you got on?

Section 106 agreements can be very restrictive as to re-sale price and who the property can be sold on to, which is a large concern for lenders as in the event of re-possession they may find it to be a very difficult and long (and therefore costly) process to actually sell the property and re-coup the money lent.

Several lenders do offer mortgages on these affordable schemes, however each has their own criteria in relation to lending to the individual person, property construction and the details of that particular 106 agreement.

Any lender who offers mortgages on a new build property will have restrictions as to how many proerties on the same deleopment they will lend on, usually in the region of 25-75%, to protect their exposure to any one development. This is normal and sensible lending practice, and does not relate soley to affiordable housing developments.

There are guidelines set out by the Council of Mortgage Lenders for local authorities to consider whilst planning these low cost developments to ensure that any covenants and the contruction type of the property fit with lenders' criteria. In some cases it is my understanding that local authorities have amended an individual 106 agreement to enable the properties to be sold due to mortgage funds being hard/impossible to obtain. However this is something you would need to raise with your local council.

If you are looking to buy a property under a section 106 agreement it is best to speak to an independent/whole of market mortgage broker who has access to the lenders' account managers and underwriters, as they will be able to forward the section 106 agreement to the relevant people to consider prior to submitting an agreement in principle, meaning you avoid un-neccessary credit checks appreaing on your credit file.

Yoe

Hello there, sorry to bump an old thread (found it from Google)

But I would love to know how you got on, we got to the point of exchange on our S106 property and Nationwide have pulled out (On the day)

Everything signed and ready to go, but today Nationwide informed us that they have a problem with the restriction on reselling the property to other local home buyers

evanowen

I spend most of my time dealing with Section 106 planning obligations, agreements, covenants etc.

99% of the agreements are fatally flawed, I can get them discharged, taken off, whatever.

What bugs me is when the potential purchaser has been through all the hoops, paid the fees and ends up with nothing. Sometimes there is negligence in the advice process, the legal service but ultimately the local authority and the vendor are the ones who should take care with these "policies of misery" as someone described them.

evanowen

Yoe wrote: »

today Nationwide informed us that they have a problem with the restriction on reselling the property to other local home buyers

Don't give in, tell Nationwide to hang on while you sort the agreement out.