A Complete Guide to Mortgage Retention

Buying a property in the UK is a complicated process and many people find the whole experience stressful, to say the least.

With so many areas to take care of during a typical mortgage application, it can become even more overwhelming when something untoward crops up.

You have done the difficult part, found a property and sourced a mortgage which you’ve applied for, but the lender comes back with a decision to retain mortgage funds.

Everything was going well, or so you thought, and now there is a spanner in the works.

What does it mean when a lender retains funds from your mortgage and what can you do to get those funds released?

This guide takes a comprehensive look at mortgage retention so you can get to grips with it.

Let’s jump in with this helpful video we produced to help you better understand mortgage retentions:

What is Mortgage Retention?

The simplest way to explain mortgage retention is when a lender decides to withhold some of the funds from the mortgage to a customer.

Sometimes this can be a partial amount of the mortgage, and in rarer cases, it can be the entire mortgage amount (100% retention).

The reason they retain the funds is normally because there is a defect identified with the property and work is needed to bring the property up to the value it was sold at.

For example, a property may be sold at £300,000 but have a problem with Japanese Knotweed with no treatment plan in place.

In this case, a lender may opt to retain the difference in value between the property with a treatment plan and without.

In almost all cases of mortgage retention, it is because the surveyor has discovered problems with the property that can be fixed to bring the property up to the correct value.

If a problem is identified with a property that can’t be fixed, or won’t allow the property to reach its stated value, a lender will in almost all cases decline the mortgage application.

What Can Cause Mortgage Retention?

There are several problems a surveyor can pick up on and relay back to a mortgage lender which would cause a mortgage retention.

In general, these fall into six main areas:

• Damp or mould
• Roof disrepair
• Japanese Knotweed
• Asbestos removal
• Gas, electrical, or central heating problems
• Structural defects (foundations, walls, etc.)

Depending on which category your mortgage retention falls into, you will find that different works and timeframes will be in play.

In some cases, a mortgage retention can be a short-term problem that is remedied quickly. In other cases, it can take a long time before you receive the full mortgage funds.

Mortgage Retention for Damp

If your mortgage has been retained due to damp or mould, it is almost definitely not going to be your “garden variety” damp problem.

Where damp and mould can be remedied easily by opening windows, wiping down walls, and ensuring good practices are used going forward, a mortgage company is not likely to be too concerned.

Damp problems that cause retention are often serious enough to impact the habitability of the property and likely have an underlying cause that can’t be remedied easily.

Sometimes, the underlying problem hasn’t yet been discovered and a mortgage company might be especially concerned about any structural damage excessive damp or mould can cause.

Retention will occur to allow the underlying issue to be fixed and then a report will be conducted to establish that the work has had the desired effect.

Mortgage Retention for Roof Repairs

Roof repairs are common in older properties, especially where there hasn’t been much maintenance or repair over the previous decades.

Because a roof protects the main property structure from the elements, a mortgage lender will want to ensure all repair work is carried out to prevent further problems down the line.

Surprisingly, roof repairs are one of the problems on this list that can be rectified quite easily, and typically retentions in this category are sorted fairly quickly.

Problems occur when the roof has a non-standard construction, and a thatched roof repair can delay the funds being released for a lengthy period.

Mortgage Retention for Japanese Knotweed

Japanese Knotweed is a notorious problem to watch out for during the home-buying process. When you buy a property with Japanese Knotweed, you should check that:

• There is a treatment plan in place.
• The treatment plan is sufficient for the level of Japanese Knotweed.
• The Japanese Knotweed hasn’t invaded foundations or structures already.

Once you have satisfied yourself on these areas, you should speak to a mortgage broker who can approach lenders that have favourable lending criteria for Japanese Knotweed.

Boon Brokers is a whole-of-market mortgage broker and we have access to lenders who will consider properties with Japanese Knotweed and a treatment plan in place.

If there is no treatment plan in place, or the plan isn’t sufficient to contain the threat of the Japanese Knotweed, a lender might retain funds until a plan is put in place.

Typically, this only occurs if the Japanese Knotweed isn’t close to the property.

If the property has a significant Japanese Knotweed problem or it has caused structural damage, the likelihood is your lender will decline the mortgage on that property.

Mortgage Retention for Asbestos Removal

Like roofing, asbestos removal is one of the simpler problems to remedy with companies who are dedicated to removing asbestos.

Though straightforward to tackle, it can be a costly process and your mortgage company may retain funds in these circumstances.

Once the asbestos has been removed, the lender will instruct a report to check that the work has been carried out correctly and that the asbestos has been removed completely.

If they’re satisfied with the report, they will release the funds.

Mortgage Retention for Gas, Electric, or Heating Repairs

Gas and electrical problems can be tricky to remedy, and it might be a time-consuming process, especially if the property needs rewiring or the gas system needs to be made safe.

Because these issues can cause fires to break out in properties, lenders will almost certainly ask that any problems be remedied and retain funds until the work is done.

Once the work is completed, the lender will ask for a gas and electrical safety report and may also request a gas or electrical engineer to compile a report on the wiring, boiler, or pipework.

Mortgage Retention for Structural Defects

If your property has major structural defects, the likelihood is you will be declined a mortgage by your lender.

For minor structural defects, such as reinforcing a supporting wall and, in rarer cases, underpinning a property, a lender may opt to retain funds.

Structural defects come in all shapes and sizes, and it is hard to say what will cause a lender to retain funds rather than decline. This is done on a case-by-case basis, with lenders ultimately assessing risk.

What is a Mortgage Retention Survey?

If you buy a property with a mortgage, a lender will instruct a survey of the property in most cases. This is to check that:

• The property is valued correctly.
• The property meets the lender’s criteria, such as standard construction.
• The property is mortgageable overall.

If the survey comes back with discrepancies, then a lender may ask for a mortgage retention survey.

This is mainly because they don’t feel the property has been valued correctly and the risk of lending the full amount is potentially too high.

After all, when a lender offers a mortgage, they need to know that, in the event they need to repossess, they can recoup their money.

A mortgage retention survey can come back in one of two ways:

1. The property has the potential to meet the stated value, provided work is carried out.
2. The property isn’t valued correctly regardless of any work that may or may not need doing.

If the first result occurs, the lender will likely provide a checklist of work that needs to be completed and retain funds from the mortgage until the checklist is completed.

In the second instance, a lender will likely decline the mortgage.

What is a 100% Retention Mortgage?

In most cases, a lender will only partially retain funds on a mortgage. For example, if they are awaiting the implementation of a Japanese Knotweed removal plan, they may lend £200,000 but retain £100,000 of it on a property valued at £300,000.

In rarer cases, the lender may decide to retain 100% of the mortgage and only make the funds available once all remedial work has been completed.

To satisfy a lender, a structural engineer’s report is most commonly required for retained funds to be released. However, this is not always the case, as it depends on the issue that caused the 100% retention, and another specialist report may be required.

When a 100% retention occurs, it can be very costly for buyers. For this reason, obtaining a full structural survey on any property you are considering purchasing is an excellent idea.

A full structural survey will highlight any issues early and help you avoid progressing too far into the buying process before needing to withdraw.

How Do 100% Retention Mortgages Work?

There are typically a few options for buyers who find themselves facing a 100% retention, although not all options will be available in every case, as lenders assess each situation individually:

• You may be able to withdraw from the mortgage application.
• You may be able to renegotiate the purchase price with the seller.
• You may be able to ask the seller to remedy the issue themselves.

The hope is that the seller will recognise the issue is likely to arise with any buyer, as they are legally required to disclose such matters via the TA6 form.

In this situation, the seller may agree to carry out the necessary work, allowing the sale to proceed at the agreed price.

Alternatively, the seller may offer a price reduction.

At first glance, this may seem unhelpful because the mortgage funds will still be retained. However, it can be particularly useful if you need to use bridging finance to complete the purchase while remedial work is carried out and the original lender releases the retained funds.

A reduced purchase price means you will need to borrow less via a bridging loan than you would have at the original agreed price.

As bridging finance is significantly more expensive than a standard mortgage, reducing the borrowing amount can help limit the interest payable when exiting the bridge.

If you have homebuyer’s insurance, or if the transaction has not progressed too far, you may be able to withdraw from the purchase entirely. However, this is not always possible, and buyers should never enter a transaction assuming they can exit at any stage.

Requirements for Mortgage Retention

A lender will typically take one of the following approaches when applying a mortgage retention:

• Provide the full mortgage funds at completion, with the condition that the required work is completed within a specified timeframe.
• Release part of the mortgage funds initially, with the remaining balance paid once the work has been completed.
• Retain the full mortgage amount and require a structural engineer’s report (or another specialist report) before releasing the funds.

What Can I Do if a 100% Retention Occurs?

If a 100% retention occurs, you do have options. First and foremost, you should speak to a whole-of-market mortgage broker such as Boon Brokers.

The options available will vary depending on your circumstances, and an experienced broker will be able to advise on the most appropriate solution for you.

• You may be able to fund the required work yourself.
• You may need to arrange a bridging loan.
• Your broker may be able to liaise with the lender to explore alternative options.

Which Lenders Offer Retention Mortgages?

Most lenders do not disclose exactly how they treat mortgage retentions, so it is difficult to say definitively which lender will be most favourable in these situations.

There are, however, a small number of lenders that may overlook very minor defects (typically up to £2,000) and choose not to retain funds. At the time of writing, these include:

• Nationwide
• NatWest
• Principality
• Skipton
• Leeds Building Society

In most cases, if a retention is deemed necessary, the lender will impose it. You can reduce the likelihood of retentions by commissioning a full structural survey before exchanging contracts and, in some cases, by using home buyers’ insurance.

Using a mortgage broker who can match your chosen property with a lender that has favourable property criteria can also help prevent issues further down the line.

Boon Brokers is a whole-of-market mortgage, insurance, and equity release broker.

Contact Boon Brokers today to discuss mortgage retention issues or to arrange bridging finance.