A Guide To Mortgage Retentions When Buying a House

Getting a mortgage can throw up a few roadblocks along the way. One of the least common problems you might face, but a difficult one if it ever occurs, is when a lender implements a retention on a portion of the loan amount you need to borrow.

This guide will tell you everything you need to know about mortgage retention; how it works, why lenders do it and who to turn to for guidance should it happen.

What is mortgage retention?

Simply put, mortgage retention is when the lender doesn’t give you the full amount of the agreed mortgage balance straight away. The lender holds on to a certain amount for a period of time, usually until certain works to the property have been carried out.

It’s not an everyday occurrence for lenders to retain part of a mortgage. They will only do this if a surveyor has identified certain work that needs to be carried out before the property is worth the value you have paid for it.

How does mortgage retention work?

When you buy a property, surveyors will carry out a valuation to determine its worth and whether it matches the asking price. This helps your mortgage provider decide how much they will lend you.

Lenders may agree to a certain value before the survey, but can decide to retain a certain amount after seeing the results. This is most likely to happen if they spot some essential works that need to be dealt with.

For example, your lender agrees to give you a £200,000 mortgage. However, they spot a damp problem and decide to give you only £190,000 straight away. They are retaining the remaining £10,000.

This £10,000 will remain with the lender until you’ve done the necessary work to fix the damp problem. The lender may well set a deadline for the works to be completed, generally within 6 months of you moving in.

Once you’ve completed this work and the lender is satisfied, the final £10,000 will be released to you.

The reasons a lender will do this

A lender may decide to retain all or part of your mortgage for several reasons. Usually, it’s because there are some vital and important works your lender wants you to get done before they are comfortable loaning you the full mortgage amount.

These works are normally deemed essential repairs. This can be anything that might affect the safety or security of the property.

This could include:

• electrical repairs
• plumbing issues
• structural damage

One of the most common reasons part of your mortgage might be retained is due to a damp and/or mould problem. Due to the climate, a lot of homes in the UK have this issue. The severity of these problems and the amount of work required to fix them varies hugely.

Other issues leading to mortgage retention could also include:

• asbestos removal
• roof repairs
• boiler repairs

The amount of mortgage your lender will retain depends on these factors. You may need to get additional valuations and surveys completed to establish this.

Different levels of mortgage retention

Lenders won’t always retain the same percentage of a mortgage. The level will depend on the severity of the problem and the amount of work required to fix it.

For some issues, it may be a relatively small amount, say 5% to 10% of the mortgage.

What is 100% mortgage retention?

This is where your lender retains the full amount of your mortgage for a certain period. They usually make this decision following a surveyor’s recommendation.

A lender will probably only retain 100% of your mortgage if there is a serious problem that needs fixing or if the property is essentially uninhabitable in its current state. It is uncommon for a lender to retain 100% of your mortgage, so don’t panic.

One way to protect yourself from this is to get a full structural survey before you complete the purchase. This is particularly useful for buying an old or repurposed construction property. This survey should highlight any potential problems that a regular valuation might not pick up on.

Which lenders retain mortgages?

Not all lenders retain mortgage borrowing. Some are also willing to overlook small mortgage retention suggestions, usually for amounts less than £2,000. At the time of writing, these lenders include: Metro Bank, NatWest, Bank of Ireland, Barclays, and Nationwide.

TSB, Virgin Money, Clydesdale Bank, and Bluestone Mortgages are lenders that will implement full mortgage retention regardless of the amount.

If you’re concerned that the property you’re buying may have some structural issues which may result in a retention of part of the loan you need, speak to an experienced mortgage broker. They’ll know which lenders are best to approach in these circumstances.

What are the financial implications of mortgage retention?

The worst-case scenario is that to enable the transaction’s completion, you will have to cover the shortfall if your lender decides to retain part or all of your mortgage and find the money to complete the needed repairs on your property.

If you’re faced with mortgage retention, you may have to take out a loan or rely on your overdraft or credit card. However, you may be able to avoid this if you can negotiate with the property seller.

As soon as the remaining mortgage is released, you should be able to quickly repay any finance. Be careful, though. If you opt for a loan, you may face early repayment charges (ERC).

How a broker can help

If you find yourself in this situation and are unsure of your options or the most financially viable solution to your problem, a broker can help.

Speaking to a broker can help you better understand your options and work out the right way forward. They can also put you in touch with lenders that may offer you a different deal or be able to negotiate a better mortgage retention deal for you.

If you’re worried about mortgage retention or want to know your options, contact us.

We work with a team of experienced brokers. Some of these experts specialise in situations like this. They can give you clear advice if you’ve been offered a mortgage with 100% retention and help you find the best solution.

Make an enquiry or give us a call on 0330 822 0505 for a free, no-obligation consultation.