What Is a Mortgage Retention and Why Does It Happen?
If you’re a borrower partway through a mortgage application and your lender has mentioned a “retention,” you’re probably wondering whether this is normal and what it means for your purchase. A mortgage retention is more common than most buyers realise, and it doesn’t have to derail your plans. This article explains what mortgage retention means, why a lender might hold back part of the loan amount and how a mortgage broker can help you move forward.
Mortgage Retention Explained
In simple terms, mortgage retention is when a lender could refuse to release a portion of the mortgage amount until certain conditions are met. Rather than releasing the full mortgage amount at completion, the mortgage lender keeps a portion of your borrowing in reserve, often to pay for the repairs on the property or essential works identified during the valuation. The retained funds are usually released once the work is done and the mortgage lender is satisfied the issue has been resolved.
Why Does a Lender Apply a Retention?
A mortgage retention occurs when a lender completes a valuation on the property you’re buying and flags issues with the property that need to be addressed before the full mortgage is released. A surveyor might identify a shortfall between what a repair should cost and what’s been budgeted, or realise that part of the property is uninhabitable until essential repairs are done. Common reasons a lender may apply a retention include:
- A damp or timber problem noted during the valuation
- Structural concerns that need a structural engineer’s report
- An unsafe roof, electrics, or damaged windows
- Missing certificates for previous building work
The lender’s aim isn’t to block your purchase; it’s to protect the property’s value and make sure any major defects are dealt with once you own it.
How Does Mortgage Retention Affect Your Purchase?
If part of your mortgage is being retained, you won’t have access to the full loan amount to complete the purchase. This could affect your eligibility for the property at the agreed asking price, since you’ll need to find another way to make up the shortfall, whether through a bigger deposit, savings, or in some cases a personal loan. Some buyers ask the seller to reduce the price to reflect the cost of the repairs; others agree to carry out the work themselves shortly after completion.
It’s worth noting that not every retention is significant. Lenders sometimes overlook small suggested retentions if the cost of the repair is minor relative to the property’s value, so it’s always worth asking your broker whether a retention is negotiable.
Can You Avoid a Mortgage Retention?
You can’t always avoid a retention, since it depends on what the surveyor finds. But there are ways to reduce the risk:
- Get quotes for any known issues before your mortgage application, so you’re not caught off guard
- Ask the seller if they’re willing to fix issues before completion of the work
- Speak to a mortgage broker early, so they can flag which lenders are known to be flexible
How Do You Get the Retained Funds Released?
Once the essential works are completed, you’ll usually need to arrange for the lender to do a re-inspection, sometimes by the original surveyor and sometimes by a different lender-appointed contact. The mortgage lender will release the remaining funds once they’re satisfied the property is worth what was agreed, and the work has been completed to standard. This process, from booking the inspection to the lender approving release, can take anywhere from a few weeks to a couple of months, so it’s worth planning your finances around a temporary shortfall.
Which Lenders Are More Flexible on Retentions?
Not every lender treats retention the same way. Some mainstream lenders are cautious and quick to hold back funds, while others may be willing to release the full mortgage amount if you agree to complete works within a set timeframe. A mortgage broker can help you get the right mortgage provider for your situation, comparing which lender offers the most workable terms, and might agree to a smaller retention, a longer repair window, or none at all, depending on the property and your mortgage in principle.
How Eden Hawk Can Help
If you’re looking for a mortgage and you’re wondering whether you could face a retention, Eden Hawk’s mortgage broker team can help before you get to the valuation stage. We know which lenders are likely to flag common issues, which mortgage providers take a more flexible view of minor repairs, and how to structure your mortgage application to reduce the chance of a surprise. If a retention has already been applied, we’ll help you find another lender if needed, or work with your existing one to release the funds as quickly as possible. Contact Eden Hawk for help with your mortgage retention at any stage of the process.
In Summary
A mortgage retention means a lender keeps back part of your mortgage funds until agreed repairs or checks are completed, and it’s rarely a reason to lose your mortgage deal altogether. Most buyers go on to complete the purchase and cover the cost of repairs afterwards to get the retained funds released. It can happen to any buyer, including a first-time buyer, and has more to do with the property’s condition than the applicant. If you’re offered a retained mortgage, it’s worth speaking to a broker who can explain your options, including whether another lender might offer better terms.