How mortgage retention works

A mortgage retention can leave you in a sticky financial situation. Here's what you can do if your lender offers one.

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A “mortgage retention” occurs when a lender approves a mortgage deal, but won’t release all the funds straight away. Instead, the lender keeps some of the money until certain conditions are met.

This is most commonly offered when a lender’s valuation survey discovers structural faults.

To complete the purchase, the buyer would need to find another way to access the money being retained.

What can be done about a mortgage retention?

While it might sound bad, a mortgage retention isn’t the end of the world. It can even be used as a powerful bargaining tool – you can use it to help renegotiate the price with the seller. However, remember that if the seller refuses to negotiate, and you want to buy the property anyway, then you’ll have to make up the shortfall yourself. If you can’t renegotiate the price or afford to spend the extra cash, then you’ll simply have to look elsewhere.

If you do decide to go ahead with the purchase, you may then need to find more money to pay for the necessary repairs. This means you may need to take out a loan – so beware of early repayment charges!

Valuation surveys and mortgage retention

Before offering you a mortgage, lenders will put your property through a valuation survey. This is to ensure the loan is being secured against something of equal value.

In some cases, the valuation survey will suggest you’re overpaying for the property, and you’ll be offered a mortgage for less than the selling price.

In other situations, the surveyors will suggest that the property could be worth the selling price if essential repairs take place. It’s in this case that a lender may want to put a mortgage retention in place.

The amount retained will be based on how much value the work would add to the property. For example, if the surveyor suggests that fixing a leaky roof would add £5,000 to a property’s value, the lender could offer a mortgage with a £5,000 retention that’ll be unlocked once the roof is repaired.

How to buy a property with a mortgage retention

You can’t complete a property purchase until you come up with 100% of the selling price. If you don’t have the retained funds lying around in your savings, you’ll need an alternative solution. Here are some options that could allow you to complete the purchase:

  • Renegotiate the selling price. If a valuation survey suggests a property is worth £5,000 less than what you’re paying, that’s a powerful bargaining tool to renegotiate the selling price. You could ask the seller to accept whatever the mortgage lender will release to you now or to pay for the repairs themselves. If they’re keen to sell quickly, they may accept.
  • Renegotiate with the lender. It’s possible a lender will agree to remove the retention if you gather quotes for the work guaranteed by a tradesperson, who is willing to start work as soon as the purchase is completed.
  • Take out a separate loan. You could borrow the money to fund the repairs, either from a friend or from another lender. Bridging loans are commonly used to finance this sort of work. Credit cards, overdrafts or personal loans could also provide a solution.
  • Wait and save the extra money. The biggest problem with this solution is that the seller often won’t be willing to wait for you to save the funds.

If you’re unable to work out a solution in time, there’s a good chance you could lose the property to another buyer.

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