Buying a Section 106 property

Buying a Section 106 property: what you need to know

A Section 106 (s106) property is a home bought under a legal agreement that includes conditions about how the property can be used and who can live in it. These agreements are commonly used to support affordability in areas where local housing demand is high.

For home buyers, the key difference is that the property is not “freehold with no strings attached” in the way many people expect. The restrictions can affect mortgage availability, deposit expectations, and future resale.

This guide explains how s106 agreements work, the most common restrictions you’ll encounter, and what to consider before you commit.

What is a Section 106 agreement?

A Section 106 agreement is a contract created as part of the planning process. It’s designed to ensure a development delivers specific outcomes for the local community.

In practice, s106 conditions often aim to:

• keep the property available to people who meet local criteria
• limit how the home can be resold (for example, requiring a discounted sale)
• require the property to be used as a main residence

The exact wording varies by location and development, so two s106 properties can feel similar day-to-day but differ significantly in what they allow.

Why Section 106 properties can be harder to mortgage

Mortgage lenders rely on the idea that, if they ever needed to repossess and sell, they could do so in a reasonable timeframe and to a broad market.

With an s106 property, the covenant can reduce the buyer pool and may limit sale price or future eligibility. That can make lenders more cautious, particularly where restrictions:

• have no clear end date
• tightly control who can buy later
• restrict the property’s use beyond a principal residence

That said, many lenders will consider s106 cases where the covenant wording is compatible with their policy.

Common restrictions in an s106 covenant

While every agreement is different, most s106 covenants fall into a few recurring themes.

1) Locality requirements

Some agreements require the buyer to have a local connection. This may be based on factors such as where you’ve lived or worked, or whether you have a job offer in the area.

2) Housing need criteria

A covenant may require the buyer to demonstrate that they have a genuine housing need. This can involve checks around income, savings, and whether you already own property.

3) Property use: principal residence only

Many s106 properties must be occupied as the main home. This is where borrowers often run into problems if they were considering:

• buying as a second home
• letting the property as a rental investment
• using it as a short-term holiday let

Even where renting is not automatically banned, it may be restricted or require permission.

4) Resale restrictions (including discounted resale)

Some s106 agreements include a resale mechanism, such as:

• a requirement to sell at a discount
• limits on who can buy when you come to sell
• a process that governs how the sale price is calculated

These terms can affect how quickly you might sell and how much you could realistically receive.

Can you rent out a Section 106 property?

In many cases, an s106 property is intended to be lived in by the qualifying occupier, so letting is often restricted.

Where renting is allowed, it may be subject to conditions such as:

• obtaining approval from the relevant authority
• limiting the duration or type of tenancy
• ensuring the property remains within the covenant’s intended use

If you’re considering renting now or later, it’s important to review the covenant wording carefully and factor in the possibility that permission may be required.

Selling a Section 106 property: what to expect

When you sell, the covenant usually means you can’t treat the property like a standard open-market listing.

Typical considerations include:

• you may need to notify the relevant party (often the local authority) about the sale
• the covenant may require the buyer to meet specific eligibility conditions
• the resale price may be discounted or calculated using a defined method

Because the buyer pool can be narrower, it’s also worth thinking about how the covenant could influence time on market and negotiation dynamics.

Pros and cons of buying a Section 106 property

Potential advantages

• More affordable purchase price: s106 homes are often offered at a discount compared with similar properties in the area.
• Community-focused purpose: the restrictions are designed to keep housing available for local needs.
• Still possible to build equity: while resale may be constrained, property values can still move over time.

Potential drawbacks

• Resale flexibility may be limited: future buyers may need to meet the covenant conditions.
• A smaller buyer pool: eligibility restrictions can reduce demand when you come to sell.
• Higher upfront costs may apply: some lenders may expect a larger deposit to manage perceived risk.
• Letting and lifestyle plans may be constrained: principal residence requirements can limit future options.

Deposit expectations

Deposit requirements for s106 properties can differ from standard residential mortgages. Some lenders may ask for a higher deposit than you might expect on a comparable property without restrictions.

A common planning assumption is that you may need around 20% (or more) depending on the covenant terms and the lender’s approach.

Because the covenant wording matters, the deposit expectation can change from one property to another—even within the same local authority area.

Lender appetite: what influences mortgage acceptance

Mortgage providers generally assess s106 cases based on the covenant’s impact on:

• resale value and marketability
• who can occupy the property
• whether the restrictions are time-limited or indefinite
• how complex the resale mechanism is

Some agreements include features designed to reduce long-term friction (for example, mechanisms that allow restrictions to be relaxed over time). Where a covenant is structured in a way that lenders can underwrite more comfortably, approval may be more straightforward.

How to approach buying an s106 property (practical steps)

Before you commit, it helps to treat the covenant as a key part of the purchase—not just paperwork.

Consider:

1. Review the covenant wording: understand the exact restrictions on occupancy, resale, and any permissions required.
2. Check your plans against the covenant: confirm you can meet principal residence requirements and whether any future letting is realistic.
3. Plan for lender scrutiny: be ready for the mortgage process to take longer if the covenant needs to be reviewed in detail.
4. Use the right legal support: a solicitor can help you interpret what the covenant means in practice and what documents you should expect.

Key takeaway

Buying a Section 106 property can be a good route to home ownership—particularly where the purchase price is discounted—but the covenant restrictions are central to the mortgage and resale picture. Understanding the occupancy rules, resale limitations, and deposit expectations early can help you make a confident decision.