Local covenant is hurting lending: adviser

Local covenant is hurting lending: adviser

A Devon-based adviser has claimed that the residential market for affordable housing is being stifled because lenders do not want to lend on properties that come with a restrictive covenant.

Trevor Branton, financial planning consultant for Clearwater Financial Planning, said he had struggled to arrange a mortgage because of a section 106 notice, which he said was causing broader problems.

Mr Branton said: “Lenders are not interested in lending on the properties due to the difficulty selling with the covenant on them.

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“The covenant is generally put in place by a local authority and is to help keep the prices lower for local buyers, but if you cannot buy it because you cannot get a mortgage, it is not any good to anyone.”

He said that under the notice, people must have lived or worked in Devon for the past three years to be eligible to buy a property with a covenant.

He claimed that very few lenders would allow residential mortgages with the covenant, and called on them to do more to support borrowing in this area.

Restrictive covenants have previously been discussed in the mortgage industry.

In December Leeds Building Society changed its lending criteria to benefit borrowers whose properties were subject to section 106.

In an announcement it said: “At present, very few mortgage providers will lend on properties affected by a section 106 agreement, which limits choice for home buyers, and for homeowners affected by the obligation who want to remortgage.”

In a note on its website from May 2014, the Council of Mortgage Lenders noted that it could not comment on or give guidance on individual cases or schemes with regard to section 106, adding that individual lenders could make their own decisions.

But in a general information section it added: “Lenders have experienced difficulties with restrictive covenants imposed by some local planning authorities through planning obligations (for example, section 106 agreements) for affordable housing.

“Local authorities can adopt different approaches to affordable housing in section 106 agreements and lenders find it very difficult to deal with the variety of restrictions being imposed.”

A spokesperson for Halifax said: “We will consider lending against the security of a property which is subject to such an agreement but will look at each case on its merits.”