Obtaining mortgage finance for self build, subject to s106 agreement

[Paul C]

Hi all

 

Looking for some much needed help here.

 

I have (subject to signing a s106 agreement) planning permission to build a property in London but Furness BS have turned around and said that they won’t consider our application unless full planning permission is granted (which requires an executed s106 agreement) which we cannot sign as we don’t (yet) have an interest in the land.

 

The s106 agreement is not contentious, car free, exemption from affordable housing contributions, payment of a construction management plan fee and £8k bond.

 

Anyone with any thoughts on another lender who might be able to help us?

 

Thanks in advice.

[Temp]

Do you have any equity in an existing property you could borrow against to buy the land?

[Paul C]

Nope, we are first time buyers and the land is £350k. We have good earnings though and can borrow over £1m on a ‘normal’ mortgage…

[Alan Ambrose]

Well the BS position seems to make sense - you are asking for lending on land which you don't yet own and don't yet have 100% PP on?

 

It sounds like you need the loan, then complete the deal, then complete the PP - is that right?

 

Maybe there's another source of funds that is happy to process your application to the point where you can close all 3 legs simultaneously?

 

 

[Paul C]

Thanks Alan. The purpose of the product the BS offers is to assist with the purchase of the land as well as the build. We can sign the s106 agreement with just an interest in the land, that can happen at exchange, and gives us full planning permission and the security any lender would require to hand over the balance of funds on completion.

 

I don’t see what the issue is with them agreeing to say we will offer you the funds to build what you want, (based on the costings/valuation of the land etc) and full planning permission being granted as part of purchase.

 

At the moment it seems they won’t even entertain our application… 

[torre]

3 hours ago, Paul C said:

have (subject to signing a s106 agreement) planning permission

So what's the state of play? Has planning permission actually been granted, including a condition requiring to sign a S106 agreement? Or just an indication from the council that they would grant permission subject to a S106 agreement?

 

If it's the latter then you could push for the former - to my mind that's then 'full planning permission' as any permission is likely to have unmet conditions (and so some risk) at the point a lender makes their decision.

 

Alternatively, could you ask the seller to enter into the agreement on some terms that protect them financially in the event you withdraw? The potential loss of that fee plus bond may be less than the cost of unsecured bridging finance until you have an interest in the land. Perhaps you already have some sort of agreement in place to cover the risk to yourself if they withdrew.

[Paul C]

Thanks Torre, that’s helpful.

 

I have a full draft letter from the council headed “Decision Subject to a Section 106 Legal Agreement”, which then goes on to say “The council has considered your application and decided to grant planning permission subject to the conditions and informative (if applicable) listed below AND the successful conclusion of a Section 106 legal Agreement.

 

Perhaps if they issue that letter (which I think they will), that might be sufficient enough for the BS although BuildStore don’t fill me with confidence around what they can achieve.

 

No agreements in place I’m afraid, the vendor is a housing association and they are incredibly inflexible. They have simply said that we will sell you the land at market value, so I am trying to get to a place where that can happen.