CML news & views

Sluggish housing market conditions have made it even more important for local authorities to stick to guidelines agreed with lenders on the use of planning controls intended to promote low-cost home-ownership.

Lenders understand and support the desires of some planning authorities to try to ensure that properties remain affordable for local people.  Three years ago, we therefore helped draw up a standard section 106 agreement, which would help ensure that any restrictive covenants imposed by planners would not make it unnecessarily difficult to get a mortgage on the property.

If a borrower cannot pay the mortgage and a lender has to take possession of the property, it is obliged to get the best price possible for it and to sell at the earliest opportunity.  But if the planning authority has deviated from the standard agreement, that will be more difficult to achieve.  The problem is exacerbated in current market conditions, where selling property is more difficult in any case.  Deviating from the standard agreement can therefore make it much more difficult to get a mortgage on the property in the first place.

The issue was raised during prime minister’s questions earlier this month when the Liberal Democrat MP for Ceredigion, Mark Williams, told MPs about the problems for constituents trying to get a mortgage when there was a restrictive covenant on the property.  We have now written to Mr Williams, explaining that lenders support section 106 agreements but need them to be used consistently.

Planners considering a restrictive covenant on a new development should therefore discuss their proposals with lenders to ensure they do not create unintended problems in lending on the property.  Using the standard section 106 agreement should help ensure that this does not happen.