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Mortgage retention explained
When you’re buying a property, your lender will conduct a valuation to see how much they think the house is worth and how much they’re willing to lend you. However, they might not be prepared to release the entire mortgage advance to you straightaway – some of the money could be retained.
This is known as mortgage retention and can be really difficult for home buyers who will then have to find the money from another source to be able to complete the purchase of the property. Let’s take a look at why your lender could do this, and what you can do in this situation.
Why money could be retained
The reason that your mortgage lender could retain some money is if they grant you a mortgage offer on the condition that some vital work to the property is carried out. For example, let’s say your lender values the property at £120,000 and you’re paying a deposit of £20,000. Your mortgage lender agrees to lend you £100,000 but they might only grant you £90,000 initially. The other £10,000 will be retained until you’ve carried out some work that the lender deems necessary, like getting the property rewired or fixing the roof – and they will often set a deadline for this (say within six months of you moving in). Once you’ve completed the work, the lender will release the final £10,000 to you.
The problem with this is that you’ve then got to find a way to fund the amount of the retention in order to complete the purchase and you’ve also got to find the money to complete the work on the property, on top of the deposit you’ve already saved up for and all of the other costs associated with moving house. If you were already at your limit in terms of what you’ve saved up, it could mean you’ll have to delay moving to save more, or it could even mean you’ll miss out on the property.
As we’ve mentioned, one option you have is just to wait a bit longer and save up the extra money, though the seller may not be willing to hang on. You could also go back to the seller and try to renegotiate a lower price, or ask them to complete the work – that way, you wouldn’t have to find any extra money.
Alternatively, you could negotiate with the lender – for example, ask them if they’ll be able to get rid of the retention if you’ve got quotes for the work guaranteed by a tradesperson who will start as soon as the purchase is complete.
A final way you could cover the shortfall is by borrowing the money elsewhere, either taking out a loan or putting it on a credit card or, potentially from a family member. The danger with this is that you risk overstretching your finances as a critical time – when you are taking on a new mortgage. But it may be a practical solution – and avoid you losing the house – because it should only be for a short period of time.
Ultimately if you can’t come up with the amount of the retention and both the lender and seller refuse to budge then you may lose the property.