Has anyone any experience of selling an affordable home with S106 condition?

lohr500

The background : 

My daughter and her partner are 1st time buyers on the housing market.

One of the new build properties they have seen and really like is available on a "low Cost Home" scheme whereby it is discounted by 30% and available to 1st time buyers who meet certain eligibility criteria.

They have checked with their mortgage advisor who has told them that it will be possible to obtain a mortgage for the property, although the scheme does mean that the list of mortgage providers is limited. They are fortunate to have a large deposit.

On face value it seems like a good way to start on the property ladder and will enable them to buy a more spacious house than they could otherwise afford.

My concern :

My primary concern though is whether they will have difficulties selling the house if/when they decide to move in the future.

As the purchase is at an early stage we don't yet have the full T&C's for the S106 condition.

However, if I have understood the basics, the house will have to remain as an affordable home going forward and be sold at the same 30% discount off the market value at the time of sale.  Given the discount at the time of buying, this doesn't seem unreasonable.

But what happens if no buyers come forward who are eligible to buy at the discounted price? Are there usually some time limits set by the local council on how long the property must remain on offer only to eligible buyers? After that period, can the house then be sold at full price, with 30% of the sale value being returned to the council?

Perhaps it will be clearer if they decide to progress with the purchase and we can see what clauses are contained within the S106 agreement.

Just thought I would ask here though in case anyone has 1st hand experience of selling their affordable home.

Thanks

housebuyer143

Let's be clear, they will likely have buyers wanting it because as you say they can get a bigger house than they can afford so I doubt resale is going to be a problem.

You might find they end up essentially trapped though because to upsize they not only need the extra 30% just to get the same sized house, they need extra again to get a bigger house. 

I don't believe the house can be sold at full price and must be discounted as it's classed as affordable housing.

lohr500

Thanks for the reply @housebuyer143.

We had considered the risk of them being "trapped" but this isn't a major concern.

The big unknown is what happens IF there aren't a stream of eligible buyers for the house when it comes to the time to sell.

I tend to agree with you that there should be buyers waiting, but the current eligibility criteria make it difficult for 1st time buyers to buy the house in question. If the same eligibility criteria apply in subsequent years (albeit index linked) then there could well be a shortage of potential buyers.

So the biggest concern is that they end up being trapped in a house they can't sell. Hopefully there will be some coverage on this in the detailed T&Cs.    

peterhjohnson

S106 is common in Gloucestershire for houses previously owned by the Council. The condition is that the buyer needs to have lived or worked in the county for 3 years. So the market for those properties is quite large although not as large as for "ordinary" houses.

lohr500

Current eligibility conditions for the home in question are : 

• *Must not already own or have a mortgage on a residential property
• *Will purchase the property and live in it as my/our principal home
• *Must have a local area connection (live, work, family etc.)
• *Joint income must not exceed £55k

At the moment there are several unsold new builds in the same scheme on the same development.
My daughter and partner are only getting the chance at one becauses the local area rule is being relaxed in two weeks time in an attempt to sell the houses. 

If the same requirements carry forward when it comes to the time to sell, then am I right to be concerned?
(Assuming the joint income value is index linked in some way).

km1500

well on reading that last paragraph it does raise a slight worry with me in that why are the other houses not selling?

the answer may affect their ability to be able to sell later down the line

lohr500

My thoughts exactly @km1500

I suspect the £55k earning cap is an issue for many 1st time buyers looking at a £249k house. Particularly for the area in question when linked to the local area connection clause. Without a significant deposit it would mean mortgaging yourself up to the eyeballs.

And I gather several lenders will not do mortgages on this type of affordable home without a significant deposit which becomes a catch 22 for many 1st time buyers. 

As mentioned above my daughter is fortunate that she and her partner can get a mortgage to buy this property.
But if there is no exit solution in the event of being unable to sell the property in a few years time due to the eligibility rules, then they would have a problem.

We definitely need to see the detail on this before commiting, but I was hoping someone on the MSE Forum might have been there already and could give some 1st hand feedback from their own experience.

Albermarle

housebuyer143 said:

Let's be clear, they will likely have buyers wanting it because as you say they can get a bigger house than they can afford so I doubt resale is going to be a problem.

You might find they end up essentially trapped though because to upsize they not only need the extra 30% just to get the same sized house, they need extra again to get a bigger house. 

I don't believe the house can be sold at full price and must be discounted as it's classed as affordable housing.

Out of interest how is the 'full price' fixed? Presumably in some artificial way, as the real market price at any point in time can only be what someone would pay for it.

user1977

Albermarle said:

housebuyer143 said:

Let's be clear, they will likely have buyers wanting it because as you say they can get a bigger house than they can afford so I doubt resale is going to be a problem.

You might find they end up essentially trapped though because to upsize they not only need the extra 30% just to get the same sized house, they need extra again to get a bigger house. 

I don't believe the house can be sold at full price and must be discounted as it's classed as affordable housing.

Out of interest how is the 'full price' fixed? Presumably in some artificial way, as the real market price at any point in time can only be what someone would pay for it.

In much the same way as market value is ascertained for any other purpose. Probably not too difficult if it's part of a development with similar, mass market properties being sold.

Skiddaw1

For what it is worth, there's a few houses in our village (including some in our wee estate) that are subject to S106 conditions and they seem to sell on without any issues.

user1977

Such planning conditions can be varied if they really seem to be preventing any sales from taking place.