Section 106 reform could improve funding certainty, but timing remains the critical issue

Proposed standardisation of Section 106 agreements could remove an important source of uncertainty from SME development finance. However, the value of the reform will depend less on the existence of national templates than on how consistently they are applied and how quickly unresolved affordable housing obligations can reach a definitive outcome.

Bridging Loan Directory reports that the government is consulting on four standard templates for developments of between 10 and 49 homes on sites of up to 2.5 hectares in England. These cover a bilateral agreement, a unilateral undertaking and affordable housing schedules for full and outline planning permissions. The consultation closes on 20 October 2026.

Why standardisation matters to finance

A planning consent subject to an unresolved Section 106 agreement does not necessarily provide a lender with enough certainty to complete its assessment. The final obligations can affect costs, values, tenure mix and the timing of delivery. Until they are known, the developer’s appraisal may remain provisional and the lender may be unable to establish whether the proposed facility and capital structure remain appropriate.

This is particularly relevant for SME developers, where delays and additional professional costs can have a material effect on viability. Standard drafting could reduce repeated negotiation over established provisions, make documentation more comparable across transactions and allow legal and credit work to progress from a clearer starting point.

As Bridging Loan Directory notes, market participants broadly welcome measures that could shorten the route from planning approval to construction. For funders, greater consistency could also improve the quality of initial due diligence. A lender can assess a proposal more efficiently when the affordable housing obligations, triggers and potential alternatives are clearly documented rather than subject to open-ended negotiation.

The cascade creates a second layer of uncertainty

The proposed mechanism for full planning permissions addresses circumstances in which no Affordable Housing Provider can be found. According to Bridging Loan Directory, the discretionary cascade would require at least six months of marketing. A local authority could then seek a different affordable housing mix or require a further marketing period of up to three months. If no provider is secured, the developer could ultimately make a financial contribution and sell the affected homes as market housing.

This provides a route out of an otherwise unresolved position, but the timetable could still complicate financing. The additional marketing period would not apply automatically, and the time required for a local authority to review evidence or approve changes would not be capped. A scheme may therefore have a defined process without having a reliably defined completion date.

That distinction matters. Finance is structured around assumptions for programme, cost and exit. If the affordable housing outcome remains uncertain for six months or potentially longer, lenders may need to examine several scenarios rather than one settled appraisal. Developers may also face continuing holding costs, changing construction costs and contractor availability while the process runs its course, concerns highlighted by contributors to the Bridging Loan Directory article.

What developers should expect from lender scrutiny

If the proposals are adopted, a standard agreement should not be viewed as a substitute for transaction-specific diligence. Funders will still need to understand the obligations attached to the site, the evidence supporting Registered Provider marketing and the financial consequences of each possible cascade outcome.

Financing discussions are likely to benefit from a clear package covering:

• the current status of the Section 106 agreement and any proposed local variations;

• the affordable housing mix assumed in the development appraisal;

• the marketing process, evidence requirements and decision points within the cascade;

• the cost, value and programme implications of alternative tenure or a financial contribution;

• the effect of delay on the construction programme and proposed exit.

For investors considering sites with planning consent subject to Section 106, the key question will remain whether the obligations are genuinely settled. Standard wording may improve visibility, but local variation and uncapped approval periods could still create a gap between consent being granted and a project becoming financeable.

Implementation will determine the outcome

The proposals have the potential to improve consistency and reduce avoidable drafting time. Yet the financing benefit will only be realised if local authorities use the templates broadly as intended and the cascade reaches decisions within commercially workable periods.

For developers and lenders, the central issue is not simply whether there is a standard process. It is whether that process produces a timely, measurable and financeable outcome. The consultation offers an opportunity to narrow the uncertainty, but the final timetable and scope for local variation will determine how much certainty the reform actually delivers.