Mortgage Retention Explained

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If you need advice about UK mortgage retention, you’ve come to the right place. We’ve created this detailed guide covering all the key information on mortgage retention, including the effect it can have on a mortgage application.

Think Plutus are a team of experienced mortgaged brokers and we have specialist knowledge in this area. If you need bespoke mortgage retention advice, please don’t hesitate to contact us and we’ll be happy to help.

What does it mean when a mortgage offer has a retention

Mortgage retention is a situation where a lender decides not to release the mortgage funds in full to the borrower straight away. They retain a certain amount of the capital until they are satisfied that certain works have been completed.

In most cases, a lender will only do this if the surveyor identifies essential work that must be completed in order to bring the property up to the stated value. In general, a mortgage retention is only imposed for essential works that must be carried out. Things like minor repairs or aesthetic/decorative work are not usually enough to make a lender impose a mortgage retention.

What is a mortgage retention survey?

When you purchase a property, part of the process involves surveyors carrying out a valuation. This is aimed at determining the value of the property and assessing whether it matches the current asking price. This step of the application process plays a major role in defining the amount a mortgage lender will agree to provide for you.

In some cases, lenders will agree to the value in principle but decide to impose a mortgage retention after the completion of the survey. This way, they retain some funds until further work is carried out. If you look at the deal from the lender’s perspective, it is essential that they are confident the property is adequate security for the loan.

Mortgage retentions for damp

One particularly common reason for mortgage retention is the issue of mould and damp. The amount of the mortgage that is retained will depend on the severity of the issue, since it is this that dictates the amount of work that will be needed to resolve the problem.

There are other common reasons why a lender may opt to retain some of your funds. These include:

  • Structural defects
  • Boiler/central heating repairs
  • Electrical rewiring
  • Roof repairs
  • Japanese knotweed removal
  • Asbestos removal
  • Spray foam insulation

How do retention mortgages work?

Let’s answer this with an example. A lender agrees to a mortgage of £245,000 to buy a property, but they are only willing to release £235,000 to begin with. This is an example of a retention mortgage. The remaining £10,000 is held back until some damp proofing work is completed – work that the lender perceives to be essential. The lender will set a deadline for those works to be carried out by, insisting that you have 6 months from the date you move in to complete the work.

Once the damp proof course is brought up to scratch, the lender releases the remaining £10,000 to your account.

Things to consider

The primary concern with mortgage retentions is that you must make up the shortfall if you decide to proceed with the purchase. On top of that, you ill need to find the funds to have the required work carried out. What this means is that you will need to source money that may not be readily available.

If you are buying a property, it is very likely that you have put all the cash you have towards the deposit. This means that, if you encounter mortgage retention, you may have to take out a personal loan, rely on a credit card or dip into an overdraft. If you’re lucky, you may be able to negotiate with the buyer or you may have extra cash available, but if not, then you have some difficult decisions to make.

Of course, once the mortgage retention is released, it should be easy to repay the debt you incurred securing those extra funds. However, you should be wary of early repayment charges (ERC) if you take out a loan.

If this is the situation you have found yourself in, and you are uncertain as to the best option to secure the funds you need, contact Think Plutus for advice. We’ll set you up with a free, no-obligation consultation with a specialist in mortgage retention.

What are 100% retention mortgages?

Sometimes, you will find that a surveyor recommends full mortgage retention until the completion of certain works is confirmed. In most cases, the issuing of a 100% retention is made pending a report from a structural engineer.

This is not a common occurrence, but it can happen if the property you are looking at has significant defects. If a property is deemed to be completely uninhabitable in its current state, a mortgage lender will want to see essential works carried out before they even consider releasing funds.

If you are considering a property with substantial defects, it can be a good idea to carry out a full structural survey. Old or non-standard construction properties may also benefit from taking this step. It pays to be alerted to any potential properties that may not be picked up by a standard valuation before completion.

What can I do if 100% mortgage retention occurs?

If the surveyor recommends a 100% mortgage retention, it may be possible to negotiate with the seller or you could simply withdraw your application completely. Ideally, the seller will acknowledge that they will not be able to sell the property in its current state and have the necessary work carried out themselves.

If your lender imposes a 100% mortgage retention before you’ve made a decision on a property, we urge you to seek expert advice before going ahead with the purchase.

What is required for mortgage retention?

Once a lender has assessed your affordability for a mortgage and carried out checks on things like your employment status and credit history, they will review the results of the legal searches and the valuation report. If that report recommends essential works that need to be carried out, this is when an ‘offer of advance’ will be issued. This will state the conditions that apply to the offer, including whether a portion of the mortgage will be retained.

The lender might:

  • Offer to lend the mortgage sum in full when you buy the property, on the condition that the work is completed by a certain deadline.
  • Offer part of the loan to begin with, adding an agreement that the remaining funds will be released if the work is completed by a certain deadline.
  • Impose 100% mortgage retention pending a report by a structural engineer.

If you wish to proceed with your mortgage application from here, you must accept the offer of advance. This means you will agree to the terms the lender outlines before moving on to the stage of legal work.

Does mortgage retention work differently in Scotland?

The process is virtually the same in Scotland as it is elsewhere in the UK. The only thing to keep in mind is that you should get advice from a specialist broker who has experience of working in the Scottish market. The same advice applies to Wales and Northern Ireland – consult a broker who knows the local markets in those regions.

Which lenders impose mortgage retention?

When it comes to mortgages, you will find that every lender has its own stance on what they will or will not accept when assessing an application. Certain banks and building societies are willing to overlook suggested retentions that are below a certain figure – say, for example, under £2,000.

Having said that, lenders usually operate largely on the advice of the mortgage valuation. If you want to submit an application with a lender that is more likely to overlook minor works, contact Think Plutus and our experts can help you place your application with the right provider.

Get expert mortgage retention advice

If you still have questions on this topic, or you want to discuss your mortgage retention options, Think Plutus are here to help.

Our team of whole-of-market experts includes advisers with specialist knowledge in the field of mortgage retention. They can deliver advice on strategies if you’ve received a mortgage offer on 100% retention. Our team can put you in the strongest possible position to find the best solution, potentially saving you time and money on your property purchase.

Contact us today for a free, no-obligation appointment. For expert mortgage retention advice, Think Plutus.

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