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