Mortgage retention for damaged homes

Sometimes mortgage lenders will retain funds if you're buying a home in poor condition. Find out what you can do if it happens to you.

Key points

  • A mortgage retention is where the lender holds back some of the funds until you’ve completed essential works
  • You’ll have to renegotiate the price, persuade the seller to do the work, pay the shortfall, or walk away
  • If you do make up the shortfall, you’ll also have to find money in the short term to complete the work, so the lender will release the retained funds
  • For fee-free independent mortgage advice from London & Country, phone 0800-0731959 or request a call back[1]

It’s every homebuyer’s nightmare - you’ve applied for your mortgage and the legal work is in progress - but the valuation comes back, and it’s not good news.

Valuations aren’t always black or white - rather than simply approve or dispute the value, sometimes lenders will agree the value in principle, but retain some of the funds pending further work.

A mortgage retention isn’t necessarily the end of your homeowner dreams, though.

How does a mortgage retention work?

If you need a mortgage, all lenders will commission a valuation survey to make sure the property is adequate security for the loan.

Sometimes, rather than simply state the property isn’t worth what you’ve offered, the surveyor will write that the property is potentially worth that amount, but will suggest a retention of a portion of the loan to be released when the work’s done.

MortgagesFor instance, on a £175,000 house with a roof leak, a surveyor might state a value of £175,000 but suggest the lender retain £5,000 until the roof is fixed.

The lender will then subtract £5,000 from the loan you’ve applied for, but they’ll release the additional funds once you’ve had the work done after purchase.

When might a lender retain some of the loan?

A lender will usually retain part of the loan because the surveyor says that some aspect of work is needed to bring the property up to the value stated.

Mortgage retentions aren’t generally for minor issues like decorative state and are usually for essential works - for example, roof repairs or an electrical rewire.

What can you do about a mortgage retention?

A mortgage retention isn’t all bad news - it can be a powerful bargaining tool.

Common reasons for mortgage retentions

  • Roof repairs
  • Electrical work
  • Boiler and central heating repair
  • Damp problems
  • Asbestos removal
  • Structural defects
  • Japanese knotweed removal

It may help you to renegotiate the price with the seller, or get them to complete the work themselves and have a new survey done to verify it.

If the seller won’t budge and you want to buy the property anyway, you’ll have to make up the shortfall of the retained funds.

This might come from your own savings, a family loan or bridging finance.

If you can’t renegotiate the price or find the extra funds, you may simply have to abandon the purchase and look elsewhere.

Getting the work done

The problem with mortgage retentions is not only are you possibly faced with making up the mortgage shortfall, but you then have to find more money post-purchase to complete the work, so you might need a loan.

Of course, you should be able to repay any finance or loan swiftly when the mortgage retention is released, but beware of loans with early repayment charges.

If you can get the work completed swiftly, you may only need short-term finance, so you might find that a 0% credit card or even a low-interest overdraft is a cost-effective option for paying for the work - you should then be able to repay it in full when the retention is released by the lender.