Development Finance – how does it work when planning requires affordable housing?

If you’re a developer who builds new homes, you’ll no doubt be familiar with the line that can change the entire scheme:

“Planning consent is subject to a Section 106 affordable housing requirement.”

On paper, it’s a tenure split: private open market sales vs affordable/social rent vs shared ownership.

In practice, it’s a cashflow structure, a delivery challenge, and an exit risk that lenders will underwrite as closely as land value, build costs and GDV.

This article explains how development finance typically works where affordable housing is required – and how ‘fundability’ changes depending on whether affordable units are:

(a) Sold as discounted market sale / First Homes

(b) Forward-sold to a Housing Association / Registered Provider (RP)

(c) Delivered in partnership with an RP

The objective is simple: to structure the scheme so the affordable element doesn’t stall drawdowns or weaken the exit. 

1. How do lenders really underwrite in a s106 scheme?

Every development lender looks at:

• Planning

• Costs

• Valuations (current and GDV)

• The Exit

Affordable housing adds two further layers:

1. Compliance mechanics – can you satisfy the s106 triggers without creating phasing or occupation issues?

2. Sales certainty and timing - affordable units may represent a material part of GDV – but they don’t behave like private units. Lenders focus on who buys them, when they pay, and how certain that revenue is.

Policy is evolving, and lenders know affordable delivery has been under pressure. That means they will expect a clear, credible sales strategy.

2. What lenders want from a ‘mixed-tenure’ proposal

Before offering terms, most lenders will expect to see:

• Executed s106 and Affordable Housing Schedule

• Clear trigger mapping (pre-commencement, pre-occupation, linkage to private sales)

• Cashflow model showing when affordable sales revenue will land

• Warranty and compliance strategy

• A realistic Plan B if RP demand slows

This isn’t about glossy presentation. It’s about removing uncertainty before a lender’s credit committee reviews the scheme.

3. Route A – discounted market sale / first homes

Here the affordable units are sold on the open market at a defined discount to eligible buyers. From a lender’s perspective, this sits closest to private sales – but with additional friction.

They will assess:

• Depth of buyer pool

• Sales predictability and timetable

• Eligibility constraints

• How the discount mechanism is enforced

If you choose this route, you’ll need to show:

• Strong local demand evidence

• A clean eligibility workflow

• Conservative sales/absorption assumptions

This structure works best where RP appetite is uncertain and policy supports discounted market sale without ongoing negotiation.

4. Route B – forward sale to an RP

This is the most familiar model - and often the most lender-friendly. A properly structured forward sale converts affordable GDV into contracted income, but lenders will look carefully at the agreement.

They will examine:

• Conditionality (too many ‘outs’ weaken the contract)

• Price certainty

• Payment structure (‘golden brick’ – RP pays at an agreed point during construction – vs ‘completion’)

• Warranty and compliance obligations

• Mortgagee protection clauses

Heads of terms always help – binding agreements carry weight.

The earlier a credible forward sale is secured, the easier underwriting becomes.

5. Route C – RP partnership or delivery structure

In larger or more complex schemes, the RP may:

• Take the land

• Enter a JV

• Fund the works directly

• Deliver under a design-and-build arrangement

When structured cleanly, this can offer strong certainty – because the RP is part of the project delivery, not simply the end-buyer.

Even so, lenders will focus on:

• Risk allocation

• Interface risk between private and affordable plots

• Overruns and delay responsibility

• Governance and procurement timelines

Where risk is clearly allocated, this can be one of the most stable funding routes.

6. The real make-or-break: phasing and cashflow

Mixed-tenure schemes rarely fail because the GDV is wrong. They fail because the timing is wrong.

Common pressure points:

• Affordable units front-loaded by s106 triggers

• RP payments only at completion

• Pepper-potting delaying handovers (where affordable homes are physically spread throughout a development rather than grouped together – councils often prefer this)

• Retentions and compliance sign-off issues

Funders want to see:

• Phasing that preserves early cashflow

• Sensitivity analysis (3-6 month slip scenarios)

• A credible contingency position

Affordable housing doesn’t weaken a scheme by default. Poor sequencing does.

7. Which route is easiest to fund?

Broadly speaking:

• Most lender-friendly: forward sale to RP with strong contractual certainty; or a structured RP partnership

• Most market-risk exposed: discounted market sale, unless demand and process are robust

The Final Word – make your scheme ‘affordable-aware’

In 2026, you won’t secure funding by arguing against affordable housing. You’ll secure it by showing you can deliver it without compromising cashflow or exit. 

These should be your key messages to any lender:

• “Here is the s106 and trigger map”

• “This is who will buy the affordable units, on what terms, and when they pay

• “Here are the cashflows”

• “Here is the contingency”

Lenders don’t object to affordable housing. They object to uncertainty. If you’re structuring a mixed-tenure scheme and want a view on how lenders are likely to assess it, I’m always happy to review your project and the numbers before you approach lenders.