---
title: "Section 106 Mortgages, Discounted and Restricted Homes"
description: "Section 106 mortgages: discounted market sale, First Homes and local connection homes, the mortgagee in possession clause, valuation and resale."
url: "https://mortgagelane.com/mortgages/section-106-mortgages"
site: "Mortgage Lane"
collection: "mortgages"
date: "2026-10-08"
author: "Joseph Lane"
category: "Mortgages"
reviewed: "2026-10-12"
reading_time: "34 min"
byline: "Joseph Lane"
author_credentials: "CeMAP · FCA authorised firm"
language: "en-GB"
robots: "index,follow"
---

# Section 106 Mortgages, Discounted and Restricted Homes

Section 106 mortgages: discounted market sale, First Homes and local connection homes, the mortgagee in possession clause, valuation and resale.

Section 106 mortgages: discounted market sale, First Homes and local connection homes, the mortgagee in possession clause, valuation and resale.

[Section 106 agreement](https://mortgagelane.com/definitions?term=section-106-agreement)

Planning and tenure

A legally binding planning obligation under section 106 of the Town and Country Planning Act 1990 that makes a development acceptable in planning terms, for example by requiring affordable homes or a contribution to local infrastructure.

[Read the full definition of Section 106 agreement](https://mortgagelane.com/definitions?term=section-106-agreement)

## Expert advice on section 106 mortgages

Speak to a Mortgage Lane adviser about your options.

## In short

Yes, you can get a section 106 mortgage, although fewer lenders lend on these homes than on unrestricted ones. The lenders that accept them look for a mortgagee in possession clause in the agreement and lend on the discounted price rather than the full market value. The discount that lowers the price when you buy also applies when you sell.

## What is a section 106 property?

**A section 106 property is a home whose sale is restricted by a planning agreement made under section 106 of the Town and Country Planning Act 1990, usually so that it stays affordable for local or first-time buyers: it is sold at a discount to market value, or only to buyers with a local connection or below an income cap, and resold on the same terms.** A section 106 mortgage, often shortened to an S106 mortgage, is an ordinary residential mortgage on such a home from a lender whose criteria accept the agreement. Fewer lenders offer a mortgage for section 106 property than for an unrestricted home, because the restrictions could bind the lender too if it ever repossessed. Lenders that offer one look for a [mortgagee in possession clause](https://mortgagelane.com/definitions#def-mortgagee-in-possession-clause) that releases or relaxes the restrictions on a repossession sale, and they lend on the discounted price rather than the [open market value](https://mortgagelane.com/definitions#def-open-market-value). The discount lowers the price you pay, and it stays with the home when you sell.

The agreement itself is a [planning obligation](https://mortgagelane.com/definitions#def-section-106-agreement). Under section 106, anyone with an interest in land can enter into an obligation restricting the development or use of the land in any specified way, or requiring it to be used in a specified way, either indefinitely or for a set period. The council can enforce it against the person who entered into it and against anyone deriving title from them, so it binds every later owner until it is released or varied, and it is registered as a local land charge, which is how a conveyancer's search finds it ([legislation.gov.uk: Town and Country Planning Act 1990, section 106](https://www.legislation.gov.uk/ukpga/1990/8/section/106)). The government's planning guidance says the same: planning obligations run with the land and are legally binding and enforceable ([GOV.UK: planning obligations](https://www.gov.uk/guidance/planning-obligations)).

For buyers, the most common type is a [discounted market sale](https://mortgagelane.com/definitions#def-discounted-market-sale) home, sold at a set percentage below open market value to eligible buyers. National planning policy for England counts discounted market sales housing as affordable housing where it is sold at least 20% below local market value, eligibility is set with regard to local incomes and house prices, and provisions keep it at a discount for future eligible households ([GOV.UK: National Planning Policy Framework glossary](https://www.gov.uk/guidance/national-planning-policy-framework-annex-b-glossary)). [First Homes](https://mortgagelane.com/definitions#def-first-homes) are a national form of the same idea with a discount of at least 30%. Other agreements restrict who can live in a home rather than its price, for example homes kept for local workers or for people over 55.

A mortgage on a section 106 home you will live in is a [regulated mortgage](https://mortgagelane.com/definitions#def-regulated-mortgage), so the lender and the adviser follow the Financial Conduct Authority's mortgage conduct rules ([FCA Handbook: MCOB](https://www.handbook.fca.org.uk/handbook/MCOB/)). The lender assesses your income and outgoings in the same way as on any other home. The agreement affects which lenders will consider the home, how the valuer reports its value and the figure the lender lends against.

Mortgage Lane arranges mortgages on discounted market sale homes, First Homes, local connection and key worker homes, age and occupancy restricted homes and other section 106 properties, for first purchases, resales and [remortgages](https://mortgagelane.com/definitions#def-remortgage). We check the agreement with your conveyancer before you commit, because the wording of a few clauses decides which lenders can consider the home. Our [first-time buyer mortgage guide](https://mortgagelane.com/guides/first-time-buyer-mortgage-guide) covers the other routes to a first home. A first sale by the developer is a new build purchase, which our guide to [new build mortgages](https://mortgagelane.com/guides/residential/new-build-mortgages) covers.

## Section 106 mortgage rates

**Section 106 mortgage rates are set by each lender, and the loan to value that sets the price band is worked out on the discounted price.** Lenders price residential mortgages in [loan to value](https://mortgagelane.com/definitions#def-loan-to-value) bands. Those that accept a section 106 agreement may price these homes on their standard rate grids or keep them to a narrower range of products, and this varies by lender. Because fewer lenders accept section 106 homes, there are fewer S106 mortgage products at each band, and a restrictive agreement can narrow the choice further. The band follows the deposit as a share of the price you pay: on a home with a £300,000 market value sold at a 30% discount for £210,000, a £10,500 deposit leaves a £199,500 loan, which is 95% of the price you pay, and a bigger deposit moves the case to a lower band, as on any other home.

The length of the fixed rate is worth choosing with the next remortgage in mind, because a new lender must also accept the agreement. A [product transfer](https://mortgagelane.com/definitions#def-product-transfer) to a new deal with your existing lender, with no extra borrowing and no change that matters for affordability, does not need a new affordability assessment under the FCA's rules ([FCA Handbook: MCOB 11.6.3R](https://www.handbook.fca.org.uk/handbook/MCOB/11/6.html)), which can make it the simpler route at the end of a deal. A longer fix gives certain payments for longer but can carry an [early repayment charge](https://mortgagelane.com/definitions#def-early-repayment-charge) if you sell or move early. Our [fixed term mortgages](https://mortgagelane.com/mortgages/fixed-term-mortgages) page explains how fixed rates are priced.

**Buying a discounted or restricted home?** Get in touch with the section 106 agreement or the developer's sales pack. We check the clauses lenders look for before you reserve.

## Section 106 mortgage criteria

**Lenders check the same points on every section 106 home, and each lender sets its own rules for them.** The First Homes rows in the table rest on the government's published scheme rules and planning guidance, the regulation and remortgage rows on the FCA's rules, and the last row on the statutes, as at October 2026. The other rows describe how lenders and agreements differ; the lender's [underwriting](https://mortgagelane.com/definitions#def-underwriting) and the agreement's own wording decide each case. The starting point for a mortgage for section 106 property is always a copy of the agreement, because the clause that matters most to a lender, what happens if it has to repossess, varies from one agreement to another. Income is assessed as on any purchase. The discount leaves the amount a lender will lend on your income unchanged and lowers the amount you need to borrow.

## Section 106 mortgage criteria

*Section 106 mortgage criteria*

| Criterion | How it works |
| --- | --- |
| The agreement | Read by the lender and your conveyancer before the mortgage offer. It is registered as a local land charge, so the conveyancer's search finds it. |
| Mortgagee in possession clause | Lenders that accept section 106 homes look for a clause that releases or relaxes the restrictions on a repossession sale. The wording each lender accepts varies by lender. |
| Valuation | The valuer reports the market value and the restricted price an eligible buyer can pay. The lender lends on the restricted price. |
| Loan to value | Worked out on the discounted price. The maximum loan to value on a section 106 home varies by lender. |
| First Homes mortgage | The mortgage must cover at least half of the price paid. |
| Eligibility | You must meet the agreement's criteria, such as first-time buyer status, a local connection, key worker status or an income cap. The council or the developer confirms it. |
| Local criteria period | First Homes: local criteria apply for the first 3 months a home is on sale. Other agreements set their own periods and cascade. |
| Resale | The discount and the eligibility rules carry on to every later sale until the obligation is released or varied. |
| Occupancy and letting | First Homes must be your only or main home and can usually be let for no more than 2 years in total. Other agreements set their own rules. |
| Remortgage | A new lender must accept the agreement. A product transfer with no extra borrowing needs no new affordability assessment under MCOB 11.6.3R. |
| Regulation | A mortgage on a home you live in is a regulated mortgage under the FCA's MCOB rules. |
| Where it applies | Section 106 covers England and Wales. Scotland uses section 75 planning obligations and Northern Ireland section 76 planning agreements. First Homes is England only. |

The First Homes rows are from GOV.UK's First Homes guide and the First Homes planning practice guidance, the remortgage and regulation rows from the FCA Handbook (MCOB) and the agreement and where it applies rows from legislation.gov.uk, checked 8 October 2026. The other rows describe how lenders and agreements vary; each lender's criteria and the agreement's wording decide a case.

## Types of section 106 home, and how each is assessed

**Every section 106 home is assessed on the same mortgage rules, and the kind of restriction decides how many lenders will consider it and what the valuer reports.**

### Discounted market sale

A discounted market sale home is sold by the developer at a fixed percentage below market value to eligible buyers, and the same percentage discount then applies on every later sale. National policy for England sets the floor at 20% below local market value, and an agreement can set a deeper discount. You own the whole home, not a share, and pay no rent. A discounted market sale mortgage is an ordinary residential mortgage on the discounted price, and your deposit is a percentage of that price. Where the home is a [leasehold](https://mortgagelane.com/definitions#def-leasehold) flat, the lease must also meet the lender's rules, which our page on a [mortgage for a leasehold flat](https://mortgagelane.com/mortgages/mortgage-for-leasehold-flat) sets out.

A discount that stays with the home is a condition attached to the property. Because it is not [equity](https://mortgagelane.com/definitions#def-equity) you own, lenders assess it under their rules for the scheme instead of treating it as gifted equity. Our page on [concessionary purchase mortgages](https://mortgagelane.com/mortgages/concessionary-purchase-mortgages) explains a family or landlord discount that the buyer does keep, and [BMV mortgages](https://mortgagelane.com/mortgages/bmv-mortgages) covers buying below market value from an ordinary seller. A council tenant's discount under [Right to Buy](https://mortgagelane.com/mortgages/right-to-buy-mortgages) is different again, and lenders assess it under their own Right to Buy rules.

**Get in touch** with the discount and eligibility terms.

### First Homes

First Homes are discounted market sale homes in England for first-time buyers, sold at a discount of at least 30% that stays with the home in perpetuity through a restriction on the title. A council can fix the minimum at 40% or 50% where its plan shows the need. On the first sale the price after the discount cannot be more than £250,000, or £420,000 in London, and a council can set a lower cap ([GOV.UK: First Homes planning guidance](https://www.gov.uk/guidance/first-homes)). Buyers must be 18 or over and earn no more than £80,000 a year before tax, or £90,000 in London, counting joint buyers' income together, and a First Homes mortgage must cover at least half of the price ([GOV.UK: First Homes scheme](https://www.gov.uk/first-homes-scheme)). For a buyer on their own the income cap applies to that buyer's income alone, and our [single person mortgages](https://mortgagelane.com/mortgages/single-person-mortgages) page covers buying alone. No rent is payable. On a £300,000 home a 30% discount gives a price of £210,000, 40% gives £180,000 and 50% gives £150,000.

National policy on First Homes changed when the National Planning Policy Framework was revised on 12 December 2024. The government removed the requirement that 25% of the affordable homes delivered through section 106 agreements be First Homes, and said councils could still deliver them through section 106 and exception sites ([GOV.UK: government response to the NPPF consultation](https://www.gov.uk/government/consultations/proposed-reforms-to-the-national-planning-policy-framework-and-other-changes-to-the-planning-system/outcome/government-response-to-the-proposed-reforms-to-the-national-planning-policy-framework-and-other-changes-to-the-planning-system-consultation)). The framework that replaced it on 17 August 2026 does not mention First Homes and leaves the levels and types of affordable housing to each council's plan ([GOV.UK: National Planning Policy Framework](https://www.gov.uk/government/publications/national-planning-policy-framework--2)). As at October 2026, existing First Homes keep their restrictions, the government's buyer guide is still published, and councils can still require new ones where their plans call for them, so whether any are offered near you depends on the area.

**Get in touch** with the council's First Homes eligibility certificate.

### Local connection and key worker homes

Some agreements restrict a home to buyers who live or work locally, or who work in specified roles, usually with a cascade that widens eligibility if no buyer is found within a set period. The agreement defines the connection, such as how long you must have lived or worked in the area, and the periods. A lender treats a local connection property like any other section 106 home, and reads the cascade alongside the mortgagee in possession clause, because together they decide how quickly the home could be sold if it were repossessed. Under First Homes, councils can set local criteria such as residency, employment or family connections and can prioritise key workers, but those criteria apply only for the first 3 months a home is marketed, after which the national criteria apply. Members of the armed forces and veterans who left in the last 5 years do not need to meet local or key worker criteria for First Homes. How lenders read teachers' pay is covered on our [mortgages for teachers](https://mortgagelane.com/mortgages/mortgages-for-teachers) page.

**Get in touch** with your eligibility evidence.

### Shared ownership under section 106

A section 106 agreement can also require a development to include [shared ownership](https://mortgagelane.com/definitions#def-shared-ownership) homes, which national policy counts as an affordable route to home ownership. Section 106 agreements without government grant delivered 36% of the 64,762 affordable homes completed in England in 2024 to 2025, and 20,353 of that year's affordable homes were shared ownership ([GOV.UK: affordable housing supply in England 2024 to 2025](https://www.gov.uk/government/statistics/affordable-housing-supply-in-england-2024-to-2025/affordable-housing-supply-in-england-2024-to-2025)). With shared ownership you buy a share of the home, usually between 25% and 75% and from 10% on some homes, and pay rent on the rest to the landlord, usually a [housing association](https://mortgagelane.com/definitions#def-housing-association). Every shared ownership home is leasehold ([GOV.UK: shared ownership](https://www.gov.uk/shared-ownership-scheme)).

The mortgage is on your share, and the lease sets the rules on selling and on buying more shares, known as [staircasing](https://mortgagelane.com/definitions#def-staircasing). The lender relies on the lease's mortgagee protection clause, under which the landlord can cover part of a lender's loss after a repossession. That works differently from a mortgagee in possession clause in a section 106 agreement. In our experience shared ownership needs at least a 10% deposit on the share bought. Our [shared ownership mortgages](https://mortgagelane.com/mortgages/shared-ownership-mortgages) page covers the lenders' rules.

**Get in touch** with the lease and the share.

### Age and occupancy restrictions

Some agreements, and some planning conditions, restrict who can live in a home rather than its price: homes for people over 55, homes for agricultural or other local workers, or homes that may only be used for holidays. These [occupancy restrictions](https://mortgagelane.com/definitions#def-occupancy-restriction) narrow the lender list further, because they shrink the pool of buyers a lender could sell to. A holiday-only restriction usually means a holiday let mortgage rather than a residential one, because the home cannot be your main residence. Our guides to [agricultural tie mortgages](https://mortgagelane.com/guides/rural-mortgages/agricultural-tie-mortgage), [restrictive covenant mortgages](https://mortgagelane.com/guides/rural-mortgages/restrictive-covenant-mortgage) and [holiday let mortgages with restricted occupancy](https://mortgagelane.com/insights/holiday-let-mortgage-restricted-occupancy) cover each kind of restriction.

**Get in touch** with the restriction wording.

### Scotland, Wales and Northern Ireland

Section 106 applies in England and Wales. Wales sets its own planning policy on affordable housing ([gov.wales: TAN 2, planning and affordable housing](https://www.gov.wales/technical-advice-note-tan-2-planning-and-affordable-housing)), and First Homes is an England-only scheme. In Scotland the equivalent is a planning obligation under section 75 of the Town and Country Planning (Scotland) Act 1997, which can be enforced against later owners once it is registered in the Land Register of Scotland or recorded in the Register of Sasines ([legislation.gov.uk: Town and Country Planning (Scotland) Act 1997, section 75](https://www.legislation.gov.uk/ukpga/1997/8/section/75)). Scotland's [First Homes Fund](https://mortgagelane.com/definitions#def-first-homes-fund) is a separate shared equity scheme, covered on our [first-time buyer mortgages in Scotland](https://mortgagelane.com/mortgages/first-time-buyer-mortgages-scotland) page. In Northern Ireland the equivalent is a planning agreement under section 76 of the Planning Act (Northern Ireland) 2011, enforceable against anyone deriving title from the person who made it ([legislation.gov.uk: Planning Act (Northern Ireland) 2011, section 76](https://www.legislation.gov.uk/nia/2011/25/section/76)), and [Co-Ownership](https://mortgagelane.com/definitions#def-co-ownership-housing) runs the shared ownership scheme there, explained on our [mortgages in Northern Ireland](https://mortgagelane.com/mortgages/mortgages-northern-ireland) page. In each nation the lender asks what the agreement restricts and what happens if it has to repossess.

**Get in touch** with the title and the agreement, wherever the home is.

First Homes in England carry a discount of at least 30%, a first-sale price cap of £250,000, or £420,000 in London, and a household income limit of £80,000, or £90,000 in London.

## What lenders check: the mortgagee in possession clause

**Lenders check what the agreement would do to them if they had to repossess, and the mortgagee in possession clause answers that question.** A lender that repossesses a home has to sell it to recover the loan. If the restrictions bound the lender too, it could sell only to eligible buyers at the discounted price, which could take longer and recover less. That is the main reason why some lenders will not lend on section 106 homes at all, and why those that do read the agreement before they make an offer.

### The mortgagee in possession clause

A mortgagee in possession clause, also called a mortgagee exclusion clause, releases or relaxes the restrictions when a lender enforces its security, so it can sell the home and recover the loan. The wording varies between agreements. Some clauses free the lender at once. Others first require it to offer the home to eligible buyers, the council or a housing association for a set period on the restricted terms, and some reimpose the restrictions on whoever buys from the lender. Lenders that accept section 106 homes look for a clause, and the wording and the length of any waiting period each will accept vary by lender. A lender can decline a home whose agreement has no clause, or one it does not accept, however strong the rest of the application.

For First Homes, government guidance says a mortgagee exclusion clause should be in every planning obligation that secures them. A lender enforcing its security is not bound by the eligibility rules and can sell on the open market at open market value, and the home stops being a First Home. Once the lender has recovered what it is owed, the council receives the remaining proceeds up to the value of the discount, and anything left goes to the former owner ([GOV.UK: First Homes guidance, paragraph 010](https://www.gov.uk/guidance/first-homes)). The clause is not the same as the mortgagee protection clause in a shared ownership lease.

### Resale mechanics and the cascade

The lender also reads how the discount and eligibility apply on resale: whether the discount is a fixed percentage of the market value at the time of sale, how long a seller must market the home to eligible buyers, and when a cascade opens the sale to a wider group. These terms decide how easily the next buyer can be found. Under First Homes, for example, you can usually sell only to an eligible buyer at the same percentage discount, local criteria fall away after 3 months, and after 6 months of trying the council can allow an open market sale ([GOV.UK: selling a First Home](https://www.gov.uk/first-homes-scheme/selling-the-property)).

### Valuation on the restricted price

The valuer reports the restricted value, the price an eligible buyer can pay under the agreement, as well as the market value the discount is worked from. The [mortgage valuation](https://mortgagelane.com/definitions#def-mortgage-valuation) is for the lender, and the lender lends on the restricted figure. Every First Home sold is valued by an independent surveyor so that the discount is based on actual market value, and if the lender's own valuation is lower than the agreed price, the lender's figure after the discount becomes the cap on the sale price ([GOV.UK: First Homes guidance, paragraph 006](https://www.gov.uk/guidance/first-homes)). A lower valuation therefore lowers the price as well as the loan. Our page on a [mortgage declined on valuation](https://mortgagelane.com/mortgages/mortgage-declined-on-valuation) covers what happens when a valuation falls short on any purchase.

### Occupancy and letting

Agreements on discounted homes usually require the home to be your only or main home, and letting it out is restricted or needs consent. Under the First Homes rules, for example, you can usually let the whole home for no more than 2 years in total while you own it, after telling the council and checking with your lender. Longer lets need the council's permission and are possible in cases such as a job move, the end of a relationship or redundancy, and renting a room is allowed while you live there ([GOV.UK: letting a First Home](https://www.gov.uk/first-homes-scheme/letting-the-property)). Letting without permission can breach both the agreement and your mortgage terms, because a residential mortgage is lent on the basis that you live in the home.

### Release or variation

The lender also asks whether the obligations have been released or varied, or can be bought out. A home whose restrictions have been discharged is lent on as an unrestricted home, while a variation still being negotiated leaves the agreement in force until it is completed. The next section explains how a restriction is removed or bought out.

## Value, resale and equity on a section 106 home

**On a discounted market sale home, you own the whole property but can only sell it at the same discount, so your equity grows with the restricted value, which moves by only part of any change in the full market value.** Your deposit and mortgage are based on the discounted price, which makes buying cheaper; when you sell, the next buyer pays the same discount on the market value at the time. A 30% discount means you take 70% of any rise in market value, and bear 70% of any fall. The discount belongs to the home, so it never builds up as equity, and the section 106 property value that matters to you and to your lender is the restricted value.

### Selling a section 106 property

Selling a section 106 property usually means selling at the same percentage discount to a buyer who meets the eligibility criteria, after any marketing period the agreement sets, before a wider cascade applies. The First Homes rules add another route: if you have tried to sell as a First Home for 6 months or more, or selling as one would cause severe difficulty such as bankruptcy, you can ask the council for permission to sell on the open market. If it agrees, you pay the council the same percentage of the sale price as your discount. If it does not agree, it may buy the home at the discounted price or ask you to keep trying for another 6 months, after which it must allow the open market sale. Other agreements set their own routes, so check yours in the agreement and with the council.

### Buying out the discount

Some agreements may allow the owner to buy out the discount by paying the council the discount amount, worked out on the value at the time, which removes the restriction. Whether this is possible depends on the agreement and the council's policy, so check it before you buy. The government's First Homes guide describes no buy-out while you own the home; its route is the open market sale above, with the discount percentage paid to the council from the sale price.

### Removing a section 106 restriction

To remove a section 106 restriction, the obligation has to be modified or discharged, which can happen at any time by agreement with the council. Without agreement, once the obligation is more than five years old, the owner can apply to the council to change it where it no longer serves a useful purpose or would serve it equally well in a modified form ([legislation.gov.uk: section 106A](https://www.legislation.gov.uk/ukpga/1990/8/section/106A)). If the council refuses, or decides nothing within 8 weeks, an appeal can go to the Planning Inspectorate within 6 months ([GOV.UK: planning obligations guidance](https://www.gov.uk/guidance/planning-obligations)). An affordable housing restriction exists to meet local need, so whether a council agrees depends on its housing policy and the case made, and it may ask for a payment in return. Mortgage Lane does not give legal advice; a planning solicitor or your conveyancer can advise on a variation.

### Remortgaging a section 106 property

You can remortgage a section 106 property with a lender that accepts the agreement, and the loan to value is worked out on the restricted value at the time. A new lender reads the agreement and its mortgagee in possession clause as it would on a purchase. On a product transfer with your existing lender, whether it looks at the agreement again varies by lender. Because the loan is measured against the restricted value, the equity available to borrow against is smaller than on an unrestricted home of the same market value; our page on how to [release equity from your home](https://mortgagelane.com/mortgages/release-equity-from-your-home) covers borrowing more.

Once a section 106 obligation is more than five years old, the owner can apply to have it changed where it no longer serves a useful purpose; a refusal, or no decision within 8 weeks, can be appealed within 6 months.

## How a section 106 mortgage is arranged

1. **Agreement reviewed.** A copy of the section 106 agreement, or the developer's sales pack, read with your conveyancer for the discount, the eligibility rules, the resale terms and cascade, any letting restriction and the mortgagee in possession clause.
2. **Eligibility confirmed.** With the council or the developer. For First Homes the developer or estate agent sends your application to the council, which issues a certificate confirming you can buy ([GOV.UK: if your First Homes application is approved](https://www.gov.uk/first-homes-scheme/if-your-application-is-approved)).
3. **Lender selected.** A lender whose criteria accept the clause wording, chosen for its loan to value limit on the discounted price and its pricing, with an [agreement in principle](https://mortgagelane.com/definitions#def-agreement-in-principle) on your income.
4. **Application and valuation.** The full application, and the lender's valuation reporting the market value and the restricted price.
5. **Completion.** The mortgage offer, then completion once your conveyancer has confirmed the purchase complies with the agreement and reported it to the lender.

## A 30% discount over time: the arithmetic

**A discount lowers the price, the deposit and the loan when you buy, and it takes the same share of any change in value when you sell.**

### Step 1. Buying at a discount

An illustrative first-time buyer, not a product or an offer, buys a section 106 home with an open market value of £300,000 at a 30% discount. The purchase is compared with the same home bought at full market value. Both purchases use a 5% deposit, which assumes a lender willing to lend 95% of the price; the maximum loan to value on a section 106 home varies by lender.

## Step 1 figures: buying at a 30% discount

*Step 1 figures: buying at a 30% discount*

| Item | Section 106 purchase | Open market purchase |
| --- | --- | --- |
| Open market value | £300,000 | £300,000 |
| Discount | 30% (£90,000) | None |
| Price paid | £210,000 | £300,000 |
| 5% deposit | £10,500 | £15,000 |
| Loan at 95% of the price | £199,500 | £285,000 |

Illustrative arithmetic on hypothetical figures, worked with the calculator on this page. The 95% loan is an assumption for the illustration, not a lender term. Not an offer of finance.

The section 106 buyer borrows £85,500 less and needs £4,500 less deposit. The scheme is designed to offer that saving to buyers who could not otherwise afford the area. If the home were a First Home, the £210,000 price would also sit under the £250,000 cap outside London, and the £199,500 mortgage would cover well over the half of the price the scheme requires.

### Step 2. Selling at the same discount

Some years later the market value has risen to £350,000 and both owners sell. The section 106 owner must sell at the same 30% discount. The figures ignore the mortgage repayments made in the meantime and the costs of buying and selling.

## Step 2 figures: selling at the same discount

*Step 2 figures: selling at the same discount*

| Item | Section 106 home | Open market home |
| --- | --- | --- |
| Market value at sale | £350,000 | £350,000 |
| Sale price | £245,000 | £350,000 |
| Gain on resale | £35,000 | £50,000 |
| Equity at sale: sale price less the starting loan | £45,500 | £65,000 |

Illustrative arithmetic on hypothetical figures, worked with the calculator on this page. Ignores mortgage repayments, fees and the costs of buying and selling. Not an offer of finance.

The section 106 owner shares in 70% of the price growth: £35,000 of the £50,000 rise. Their equity at sale, £45,500, is the £10,500 deposit plus the £35,000 gain, against £65,000 on the open market purchase, the £15,000 deposit plus the £50,000 gain.

### Step 3. If the market value falls

The same proportion applies to a fall. If the market value drops to £270,000, the section 106 home sells for £189,000, a loss of £21,000 on the £210,000 price, against a £30,000 loss on the open market home. Before any repayments, both owners would owe more than the sale price on the starting loan: £10,500 more on the section 106 home (£199,500 against £189,000) and £15,000 more on the open market home (£285,000 against £270,000). A repayment mortgage reduces the loan every month, so the gap narrows the longer you own the home, and the calculator lets you test other values.

### What decides the case

Read the agreement before reserving, confirm your eligibility and the mortgagee in possession clause, and choose a lender that accepts the wording. The agreement fixes the discount, the cascade and the clause when you buy, which leaves the deposit, the lender and the length of the fixed rate as your choices. Buying at a discount means a smaller loan and deposit now and a smaller share of any growth later. Compare it with the other ways to bring a purchase within reach: a [gifted deposit](https://mortgagelane.com/definitions#def-gifted-deposit) on our [gifted deposit mortgages](https://mortgagelane.com/mortgages/gifted-deposit-mortgages) page, [95% mortgages](https://mortgagelane.com/mortgages/95-percent-mortgages) and the schemes on our [low income mortgages](https://mortgagelane.com/mortgages/low-income-mortgages) page.

## Related topics

- [2026](https://mortgagelane.com/mortgages/concessionary-purchase-mortgages)Mortgage[Concessionary Purchase Mortgages, Gifted Equity as a Deposit](https://mortgagelane.com/mortgages/concessionary-purchase-mortgages)Concessionary purchase mortgages for buying from family, your landlord or employer below market value: the discount as your deposit, Right to Buy and the tax.[Read more about Concessionary Purchase Mortgages, Gifted Equity as a Deposit](https://mortgagelane.com/mortgages/concessionary-purchase-mortgages)
- [2026](https://mortgagelane.com/mortgages/gifted-deposit-mortgages)Mortgage[Gifted Deposit Mortgages, Gift Letters and Inheritance Tax](https://mortgagelane.com/mortgages/gifted-deposit-mortgages)Gifted deposit mortgages: who can give, the gift letter and source-of-funds checks, occupier waivers, and the giver's inheritance tax and the seven-year rule.[Read more about Gifted Deposit Mortgages, Gift Letters and Inheritance Tax](https://mortgagelane.com/mortgages/gifted-deposit-mortgages)
- [2026](https://mortgagelane.com/guides/first-time-buyer-mortgage-guide)Guide[The Complete First-Time Buyer Mortgage Guide](https://mortgagelane.com/guides/first-time-buyer-mortgage-guide)The complete first-time buyer guide: deposits, 95% and 100% mortgages, JBSP and gifted deposits, concessionary purchases, Shared Ownership, First Homes, Right to Buy and every devolved scheme.[Read more about The Complete First-Time Buyer Mortgage Guide](https://mortgagelane.com/guides/first-time-buyer-mortgage-guide)

## More topics in this series

## Section 106 mortgage calculator

The calculator shows the price, deposit and mortgage on a section 106 home sold at a discount, set against the same home bought at full market value, and what each owner would have on selling at a later market value. The starting figures are the illustration on this page: a £300,000 home at a 30% discount, a 5% deposit and a market value of £350,000 at sale. Enter the market value, the discount in the agreement, your deposit and an assumed future value, and move the market value to see the price and the loan change.

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Indicative estimate only, subject to lender criteria, affordability and valuation. The figures assume the lender lends on the discounted price and the same percentage discount applies when you sell, and they ignore mortgage repayments, fees and the costs of buying and selling. This is not a mortgage offer. Your home may be repossessed if you do not keep up repayments on your mortgage.

## Frequently asked questions about section 106 mortgages

**Q: Can I get a mortgage on a section 106 property?**

faq-id: can-i-get-a-mortgage-on-a-section-106-property

Yes, you can get a mortgage on a section 106 property from a lender whose criteria accept the agreement's terms. Lenders that accept these homes look for a mortgagee in possession clause, which releases or relaxes the restrictions if the lender has to repossess and sell, and they lend on the discounted price rather than the full market value. Fewer lenders lend on section 106 homes than on unrestricted ones, and the clause wording each accepts varies by lender, so check the agreement before you reserve. A mortgage on a home you live in is a regulated mortgage, assessed on your income and outgoings in the usual way.

**Q: What is a section 106 property?**

faq-id: what-is-a-section-106-property

A section 106 property is a home subject to a planning agreement under section 106 of the Town and Country Planning Act 1990 that restricts who can buy it, at what price or how it is used, usually to keep it affordable for local or first-time buyers. The obligation binds the person who made it and anyone who later owns the home, until it is released or varied ([legislation.gov.uk: Town and Country Planning Act 1990, section 106](https://www.legislation.gov.uk/ukpga/1990/8/section/106)). The most common type for buyers is a discounted market sale home, sold below market value with the discount passed on at every sale. Section 106 covers England and Wales; Scotland and Northern Ireland use their own planning agreements.

**Q: Why do some lenders refuse section 106 properties?**

faq-id: why-do-some-lenders-refuse-section-106-properties

Some lenders refuse section 106 properties because the restrictions could limit their ability to sell the home if they had to repossess it. A home that can only be sold at a discount to eligible buyers may take longer to sell and recover less, its restricted value can be harder to assess, and resale demand is narrower. Lenders whose criteria accept section 106 homes do so where the agreement includes a mortgagee in possession clause they accept, which lets them sell free of the restrictions, sometimes after a set period offering the home to eligible buyers. Without a clause it accepts, a lender can decline the home however strong the application.

**Q: What is a mortgagee in possession clause?**

faq-id: what-is-a-mortgagee-in-possession-clause

A mortgagee in possession clause is a provision in a section 106 agreement that releases or relaxes the restrictions if a lender repossesses the home, so the lender can sell it and recover the loan. Some clauses free the lender at once; others first require a period of offering the home to eligible buyers, the council or a housing association on the restricted terms. For First Homes, government guidance says every agreement should include a mortgagee exclusion clause letting a repossessing lender sell on the open market ([GOV.UK: First Homes guidance](https://www.gov.uk/guidance/first-homes)). Lenders that accept section 106 homes look for one, and the wording each accepts varies by lender. It is different from the mortgagee protection clause in a shared ownership lease.

**Q: What is a discounted market sale home?**

faq-id: what-is-a-discounted-market-sale-home

A discounted market sale home is sold at a set percentage below its open market value to buyers who meet eligibility criteria, and the discount stays with the home, so every later sale is at the same percentage below market value. National planning policy for England defines discounted market sales housing as sold at least 20% below local market value, with eligibility set by local incomes and house prices and provisions keeping it discounted for future eligible households ([GOV.UK: National Planning Policy Framework glossary](https://www.gov.uk/guidance/national-planning-policy-framework-annex-b-glossary)). Each agreement fixes its own percentage, which can be deeper than 20%; First Homes, for example, are discounted by at least 30%. You own the whole home and pay no rent.

**Q: What is the First Homes scheme?**

faq-id: what-is-the-first-homes-scheme

The First Homes scheme sells homes in England to first-time buyers at a discount of at least 30% to market value, and councils can set 40% or 50%. On the first sale the price after the discount is capped at £250,000, or £420,000 in London. Buyers must earn no more than £80,000 a year before tax as a household, or £90,000 in London, and get a mortgage for at least half the price, and councils can add local criteria for the first 3 months a home is on sale. The discount stays with the home at every later sale ([GOV.UK: First Homes scheme](https://www.gov.uk/first-homes-scheme)). As at October 2026 national planning policy no longer requires councils to deliver First Homes, so whether any are offered depends on the area.

**Q: Who can buy a section 106 property?**

faq-id: who-can-buy-a-section-106-property

Who can buy a section 106 property depends on the agreement. Its criteria can include being a first-time buyer, having a local connection through where you live or work, working in a key worker role, or having a household income below a cap. First Homes, for example, are for first-time buyers aged 18 or over with a household income of £80,000 or less, or £90,000 in London, who can get a mortgage for at least half the price. An agreement can include a cascade that widens eligibility if no eligible buyer is found within a set period, and the council or developer confirms whether you qualify before you reserve.

**Q: How are section 106 properties valued for a mortgage?**

faq-id: how-are-section-106-properties-valued-for-a-mortgage

Section 106 properties are valued for a mortgage at the restricted value, the price an eligible buyer can pay under the agreement, alongside the open market value the discount is worked from. The lender lends against the restricted figure, so the loan to value is calculated on the discounted price. Every First Home sold is valued by an independent surveyor so the discount reflects actual market value, and if the lender's valuation is lower than the agreed price, the lender's figure after the discount caps the sale price ([GOV.UK: First Homes guidance](https://www.gov.uk/guidance/first-homes)). A lower valuation therefore lowers the price as well as the loan.

**Q: Do I need a local connection to buy a section 106 home?**

faq-id: do-i-need-a-local-connection-to-buy-a-section-106-home

You need a local connection to buy a section 106 home only if its agreement requires one, and some restrict sales to people who live or work in the area, at least for an initial marketing period. The agreement defines the connection, such as how long you must have lived or worked locally, and the council decides what evidence it accepts, which can include proof of address or a letter from your employer. Under First Homes, local criteria apply only for the first 3 months a home is on sale, and members of the armed forces and veterans who left in the last 5 years do not need to meet them ([GOV.UK: First Homes scheme](https://www.gov.uk/first-homes-scheme)).

**Q: How much deposit do I need for a section 106 property?**

faq-id: how-much-deposit-do-i-need-for-a-section-106-property

The deposit for a section 106 property is a percentage of the discounted price, so a 5% deposit on a home with a £300,000 market value sold at 30% off, for £210,000, is £10,500, against £15,000 on the full price. The maximum loan to value on section 106 homes varies by lender, so the deposit you need depends on the lender as well as the price. For First Homes the mortgage must cover at least half of the price, so the deposit can be no more than half. Purchase costs come on top of the deposit.

**Q: Can I sell a section 106 property?**

faq-id: can-i-sell-a-section-106-property

You can sell a section 106 property, but usually only at the same percentage discount to market value and to a buyer who meets the eligibility criteria, after any marketing period the agreement sets. Under First Homes, local criteria apply for the first 3 months, and if you cannot sell as a First Home after 6 months the council can allow an open market sale, with the same percentage of the sale price paid to the council ([GOV.UK: selling a First Home](https://www.gov.uk/first-homes-scheme/selling-the-property)). Other agreements set their own cascade and periods, so check your agreement and ask the council about the route for your home.

**Q: Can section 106 restrictions be removed?**

faq-id: can-section-106-restrictions-be-removed

Section 106 restrictions can be removed if the obligation is modified or discharged, either by agreement with the local planning authority at any time or through a formal application once the obligation is more than five years old. On an application the council considers whether the obligation still serves a useful purpose, and a refusal can be appealed to the Planning Inspectorate within 6 months ([GOV.UK: planning obligations guidance](https://www.gov.uk/guidance/planning-obligations)). Affordable housing restrictions exist to meet local need, so whether a council agrees depends on its housing policy, and it may ask for a payment in return. A planning solicitor can advise on your agreement.

**Q: Does a section 106 property increase in value?**

faq-id: does-a-section-106-property-increase-in-value

A discounted section 106 home's resale price rises with the market, but only at the discounted percentage, so your equity grows more slowly than on an unrestricted home. With a 30% discount you share in 70% of any rise: if the market value goes from £300,000 to £350,000, the discounted price goes from £210,000 to £245,000, a £35,000 gain against £50,000 on the open market. The same applies to a fall, so you also bear 70% of any drop in market value. The discount stays with the home and never becomes your equity.

**Q: Can I buy a section 106 home if I am not a first-time buyer?**

faq-id: can-i-buy-a-section-106-home-if-i-am-not-a-first-time-buyer

You can buy some section 106 homes if you are not a first-time buyer, because the eligibility rules come from each agreement. Some, such as First Homes, are only for first-time buyers, and where people buy a First Home together every buyer must be a first-time buyer. Others are open to existing homeowners who meet local connection, key worker or income criteria, or are restricted by age or occupation rather than by buying history. The agreement's eligibility terms decide, and the council or developer confirms whether you qualify before you reserve.

**Q: Are First Homes still being built?**

faq-id: are-first-homes-still-being-built

First Homes can still be built where a council asks for them, but national policy no longer requires them. When the National Planning Policy Framework was revised on 12 December 2024, the government removed the requirement that 25% of affordable homes delivered through section 106 agreements be First Homes, and said councils could still deliver them through section 106 and exception sites. The framework that replaced it on 17 August 2026 does not mention First Homes and leaves the types of affordable housing to each council's plan ([GOV.UK: National Planning Policy Framework](https://www.gov.uk/government/publications/national-planning-policy-framework--2)). As at October 2026 existing First Homes keep their restrictions, and the government's buyer guide is still published.

**Q: Can I buy out the section 106 discount?**

faq-id: can-i-buy-out-the-section-106-discount

Some section 106 agreements may allow you to buy out the discount by paying the council the discount amount, worked out on the value at the time, which removes the restriction. Whether this is possible depends on the agreement's wording and the council's policy, so check the agreement and ask the council before relying on it. The government's First Homes guide describes no buy-out while you own the home: its route is an open market sale with the council's permission after trying to sell as a First Home, paying the council the same percentage of the sale price. A conveyancer or solicitor can explain what your agreement allows.

**Q: Can I remortgage a section 106 property?**

faq-id: can-i-remortgage-a-section-106-property

You can remortgage a section 106 property with a lender that accepts the agreement, and the loan to value is worked out on the restricted value at the time, not the full market value. A product transfer to a new deal with your existing lender, with no extra borrowing and no change likely to matter for affordability, does not need a new affordability assessment under the FCA's rules ([FCA Handbook: MCOB 11.6.3R](https://www.handbook.fca.org.uk/handbook/MCOB/11/6.html)), and whether the lender looks at the agreement again varies by lender. Moving to a new lender means it must accept the agreement and its mortgagee in possession clause, as on a purchase.

**Q: Can I let a section 106 property?**

faq-id: can-i-let-a-section-106-property

Section 106 homes sold at a discount usually have to be your only or main home, and letting is restricted or needs the council's consent. Under First Homes you can usually let the whole home for no more than 2 years in total while you own it, after telling the council and checking with your lender. Longer lets need the council's permission and are possible in cases such as a job move, the end of a relationship or redundancy, and renting a room is allowed while you live there ([GOV.UK: letting a First Home](https://www.gov.uk/first-homes-scheme/letting-the-property)). Letting without permission can breach both the agreement and your mortgage terms.

**Q: Is shared ownership the same as section 106?**

faq-id: is-shared-ownership-the-same-as-section-106

Shared ownership and section 106 are different, but they can overlap, because a section 106 agreement can require a development to include shared ownership homes. With shared ownership you buy a share of the home, usually 25% to 75% and from 10% on some homes, and pay rent on the rest, and every shared ownership home is leasehold ([GOV.UK: shared ownership](https://www.gov.uk/shared-ownership-scheme)). A discounted market sale home is owned outright at a discount, with no rent. Lenders treat them differently too: shared ownership relies on the lease's mortgagee protection clause, while a discounted home relies on the agreement's mortgagee in possession clause.

**Q: What should I check before buying a section 106 home?**

faq-id: what-should-i-check-before-buying-a-section-106-home

Before buying a section 106 home, check the discount, the eligibility criteria, the resale terms and any cascade, the letting and occupancy restrictions, the mortgagee in possession clause and whether the discount can be bought out. Your conveyancer reviews the agreement, which shows up in the local search because a planning obligation is a local land charge, and your broker checks which lenders accept its wording. For First Homes, also check that the price is within the cap and that your mortgage will cover at least half of it. Doing this before you pay a reservation fee avoids committing to a home your lender will not accept.

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Published: 2026-10-08

Last reviewed: 2026-10-12

Source: https://mortgagelane.com/mortgages/section-106-mortgages