People who borrowed to build homes could become “mortgage prisoners” due
to onerous planning restrictions placed on them by local authorities,
Evan Owen has warned.
The former adviser and founder of the IFA Defence Union, said there was
a lack of providers offering finance for homes as they have section 106
planning conditions of the Town and Country Planning Act 1990 imposed on
This means that consumers could lose money on mortgage arrangement fees,
or they could be unable to secure a mortgage or remortgage on their
Gwynedd-based Mr Owen said: “These conditions are common on new property
developments in rural areas such as Wales, Cornwall, the Lake District
and the Yorkshire Dales.
“They mean that people building a new home often have to adhere to
strict conditions to get planning consent, such as ensuring the
occupants are local and that any future sale is at an affordable cost to
the local community.
“Houses in some cases have to be put on the market at 60 per cent of the
market value. This can leave homeowners with negative equity and the
reality is that most mortgage providers, and to that matter equity
release providers, will not touch them, and if they do, they are seen as
of a higher risk.”
It means a borrower could have spent thousands of pounds on fees before
finding out that they cannot get finance on the property.
However, if they do, they could find themselves stuck with the same
provider at vastly increased rates, or unable to remortgage as the
provider deems them to be too risky.
The Section 106 (local needs) clause of the Town and Country
Planning Act 1990 states that local authorities can impose
“any restriction or requirement” on a planning case to
protect a community from overdevelopment. An example of this
policy can be found in many rural regions in the UK, such as
Gwynedd in north Wales, where the policy is used to promote
the Welsh language by restricting migration by non-Welsh
Council of Mortgage Lenders spokesman Bernard Clarke agreed that lenders
were cautious when presented with a section 106 case in these
circumstances, and that the CML had lobbied local authorities over the
He said: “Mortgages are secured on property. If there are barriers
limiting the potential to sell the property, it is bound to be a concern
for the lender.
“The more restrictive the planning agreement, the more a lender sees it
as a risk and, consequently, they will be less likely to lend on that
case. Most lenders will consider each case on its individual merits, but
these types of restrictions do limit the pool of lenders.
Glyn Jones, owner of north Denbighshire-based Vale Financial Services,
said: “This is definitely a problem. I have experienced a few of these
cases and they tend to prove very restrictive when seeking finance. It’s
basically creating another type of mortgage prisoner as the lenders will
just find it easier to stay away from properties of this type.”