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Mortgage retention for damaged homes

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

Updated 16 July 2020  | 2 min read

Key points

  • A mortgage retention is where the lender holds back some of the funds until you’ve completed essential works
  • Your options are 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, before the lender will release the retained funds

Rather than simply approve or dispute the value after you have your mortgage valuation survey, sometimes lenders will agree the value in principle, but retain some of the funds until repair work is completed.

How does a mortgage retention work?

When you’re taking out a mortgage, lenders will commission a valuation survey to make sure the property is adequate security for the loan.

Rather than simply state the property isn’t worth what you’ve offered, sometimes 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.

Mortgage retentions aren’t for minor issues like decorative state. They’re for essential works like roof repairs or an electrical rewire.

For example, 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.

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 refuses 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’ll have to walk away from the purchase.

Getting the work done

You should be able to repay any finance or loan as soon as the mortgage retention is released, but beware of loans with early repayment charges.

If you can get the work completed quickly, you may only need short-term finance such as a 0% credit card or low-interest overdraft - could be an option to cover the short-fall on your mortgage.

Short-term finance, over the long term, is an expensive way to borrow. So you’ll need to be sure you're able to borrow it responsibly and cover any interest.

It’s not uncommon to have to wait until a second survey after you’ve got the work done before your lender will release the retained part of the mortgage. Factor this in to any borrowing commitments you make.

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