Mortgage retention explained

If your mortgage has been retained and you’re wondering whether to go ahead with the property purchase, pull out or, if you’re unsure about what your options are, read this guide or use the chat box in the right hand corner to get advice quickly.

This page explains why mortgage retention happens, what to do if part of your mortgage is held back and who you can ask for help

What’s mortgage retention?

It’s when a mortgage lender retains part of the full loan amount they offered you. For example, a lender might have given a mortgage in principle for £200,000 but decide to lend only £190,000 until your chosen property meets their standards.

This usually happens during the surveying stage of a mortgage. If your lender's surveyor flags issues with the property, like outdated wiring that needs replacing, your lender might decide to retain part of that loan until those issues have been repaired.

How can it affect my application?

Without 100% of the mortgage to buy the property, you’ll need to raise or borrow the remainder of the property price in order to complete the purchase. If you’ve allocated all of your available savings for your deposit, you might not be in a position to do this.

If you’ve recently had part or all of your mortgages retained you might still have some options, depending on your circumstances, including borrowing money with a personal loan or credit card.

Borrowing more money to cover the difference 

The problem with that is that borrowing more on credit increases your debt-to-income ratio (also referred to as DTI). Most lenders look at this factor to consider the likelihood of you defaulting on your mortgage repayments. After all, having a higher level of debt in relation to your income is risky and might not leave you with enough to cover all of your outgoings.

What’s considered a high DTI is different among banks and lenders but generally speaking, a high DTI is anything over 40%.

Applying for credit in the run-up to a mortgage application or during an application can also affect your ability to get approved by your chosen lender. Lenders run extensive mortgage credit checks to determine whether you can afford the mortgage and applying for credit, whether you get approved or declined, will appear on your credit reports for them to see.

If you’re unsure about whether you’ll get approved for any additional credit and how that could affect your eligibility with your current lender, ask a mortgage broker to look at your situation and provide you with the pros and cons of your options so you can make a decision derived from expertise. 

What lenders can retain part of the mortgage?

Banks and mortgage providers each differ with their own set of terms and conditions for the products they offer. While Nationwide, hypothetically, might decide to retain part of a mortgage until work has been carried out, another lender could be willing to overlook small suggested retentions provided that they are below a certain figure, for example, £2,000.

There are also a group of lenders, including Virgin Money, Barclays and Kensington that don’t disclose their lending criteria to the general public, which is why it can be tricky searching for answers or an alternative lender without the help of a broker, as you won’t know which ones to approach or avoid based on your circumstances. 

Why do lenders retain some of the loan?

A lender that’s decided to retain a portion of the mortgage usually does so after their surveyor has identified work that needs to be carried out before they release the funds for the remainder of the build.

Essential work that might be flagged by a lender could include:

• asbestos removal
• boiler and central heating repairs
• damp and mould remova
• electrical rewiring 
• Japanese knotweed elimination
• roof fixes
• structural repairs
• water maintenance
• woodworm

Usually but not always, it's essential maintenance that gets flagged by lenders and not aesthetic issues or minor repairs. Without a surveyor's approval and valuation, lenders don’t have enough information to confirm that the property will be worth as much as you, (the borrower), say it will be. 

While it can be frustrating to have a lender refuse to release 100% of your mortgage funds, fixing flagged work means that the value of your mortgage is closer to the value of the property. If you bought the house without knowing about the damage and you then had to sell your house and repay your mortgage balance, you might not be able to sell it for what you bought it for and you could lose money.

When might a lender decide to retain part of the mortgage?

When you buy a property, surveyors will carry out a valuation to see how much they think the property is worth and if it matches the asking price. This helps dictate how much a mortgage provider will agree to lend you.

For example, if you agree to buy a house at the asking price of £200,000 but your lender has it valued by a surveyor who says it’s worth £190,000 because of issues like deteriorated electrical wiring, (common with properties built before the 1970s), they might decide to either decline the mortgage application or retain part of the mortgage until work is carried out and they believe the property is worth £200,000.

What happens next?

deadline of 6 months is often granted, giving time for you or the seller to ensure the necessary improvements are completed.

The lender will then have a new valuation carried out, known as a mortgage retention survey. If the surveyor is satisfied, they’ll report this back to your lender who will subsequently release the funds

Retaining part of a mortgage is a way that the lenders can reduce their risk of loss. Your property is used as security for the mortgage and if it’s worth less than what you want to borrow to buy it, the lender could lose money if they have to repossess and sell it to cover your outstanding balance.

What to do if your mortgage is being retained

Here's what you can do if your lender offers mortgage retention:

• Drop out of the property purchase
• Try and negotiate a lower asking price with the seller 
• Ask the seller to pay for the work to be completed
• Borrow money to pay for the work to be completed yourself

Before you make a decision about what to do, ask your lender to specify exactly what needs to be improved and what the deadline is for the completion of the work.

Remember, you can ask a mortgage broker to manage a mortgage retention issue for you.

So, if you simply don’t have the time or the experience in negotiating with a lender and you’d much rather a professional handle it for you, ask for help.

Drop out 

You can withdraw or reject an offer on a property at any time up to the exchange of contracts. If your lender tells you that they’re going to retain part of the mortgage and you’re not prepared for the inconvenience of potentially needing to raise funds to pay for the shortfall and for work to be carried out, you can decide not to proceed with the purchase.

Negotiate a lower asking price

A lower asking price would mean that there would no longer be a shortfall, or less of a shortfall, depending on the recommendations found by the surveyor.

The seller of the property may be willing to reduce the price to help the sale go through, especially if they understand that a different buyer may also face the same issues when trying to buy the property

Ask the seller to pay for the work to be completed

The seller may also consider paying for and managing the requested repairs or maintenance necessary for your lender to release the full mortgage amount. 

Borrow money to pay for the work to be completed yourself

This option has its obvious risks. Taking out additional finance increases your overall debt and outgoings and your mortgage lender might not like you maxing out your available credit.

Keeping your credit utilisation low during a mortgage application and not applying for additional sources of finance are two ways that you can improve your ability to continue to meet your mortgage lender’s mortgage criteria.

That being said, if you’re keen to buy the property and you don’t have a separate pot of funds to rely on, it might be an option. 

Find a new mortgage lender

Another lender might have criteria that allows them to provide a mortgage without a retention or, alternatively, their surveyor might not conclude that any work needs to be completed.

Searching for a lender online will present you with lots of options but it won’t give you all of them as many lenders only accept direct enquiries or applications from an intermediary like a mortgage broker

Expand the options available to you by getting in touch with a mortgage broker with access to a range of lenders. 

What should I do if my mortgage is retained because of a damp and mould problem?

According to a report published in 2021 by the Housing Ombudsman, mould and dampness are thought to affect 1 in 5 homes in Britain, affecting landlords, tenants and buyers alike.

If a lender discovers that the property you want to buy is affected substantially by mould and dampness, they could retain part of the mortgage. The amount that is held back until the damp and mould is gone will usually be equal to what it will cost to fix the damp problem.

Mould and dampness are incredibly dangerous for the respiratory system so it’s in your interest as a buyer to have it removed before you make your property your home. The Housing Ombudsman said in their 2021 report that those, “living in homes with damp and mould may be more likely to have respiratory problems, allergies, asthma, and other conditions that impact on their immune system.”

Getting rid of mould

It might be something that the seller themselves is willing to fix as doing so would allow them to sell their property quicker. However, if the seller refuses to pay for and manage the removal of the mould themselves, you might have to source a specialist mould remover to do the job.

Mould and dampness are usually caused by:<

• Condensation and inadequate ventilation in the property
• Penetrating damp caused by a leak in the roof, walls, windows
• Rising damp from the floors
• Problems with the plumbing

Most mortgage lenders don’t retain mortgages in the event of dampness and mould, unless the problem is severe, to the extent that it makes the property uninhabitable. For example, rotten building timbers that affect the structural integrity of the property could be a reason for a lender to retain some or all of the mortgage.

What now?

Seek independent financial advice and speak to a mortgage broker before making a decision on what to do next. Our experts have arranged mortgages after a retention has been offered. After getting to know more about you and what you need from your mortgage, they can search the market and use their relationship with UK lenders to find a better suited solution.

Call 023 8098 0304 or ask for a call back here if you’d rather we got in touch with you.

FAQs

Do lenders always retain part of a mortgage if the surveyor finds problems with the property?

No. A mortgage lender won’t always decide to do mortgage retention and iIn some cases the mortgage lender will release the full mortgage amount with a stipulation that renovation work is done within a certain time frame.

It’s not that common for a lender to retain 100% of your mortgage.

How can I reduce the risk of mortgage retention?

Get a full structural survey before you complete your purchase. This is particularly useful if you’re buying an old or repurposed construction property.