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Posted on 25 August 2020

What is a ‘mortgage retention’, and how could I handle it?

As we are keen to provide as much value to our customers, we have chosen to…

As we are keen to provide as much value to our customers, we have chosen to pick another obscure topic that many first-time buyers have never heard of – mortgage retention, or simply – ‘retention’.  In this blog, we speak to Steven who tells us about his experience with mortgage retentions as a first-time buyer.

It is worth explaining, first off, what a retention is.  In simple terms, a retention is an amount of money withheld by the buyer’s lender from the total mortgage.  This is released once certain predetermined conditions are met.  As a buyer, you must find the money upfront to cover the difference. This is where we pick up Steven’s story.

It was pretty surprising and totally unexpected. When the HomeBuyer’s Report came back from the bank appointed surveyor, there was nothing in it that indicated the bank would retain some of the mortgage.  Luckily, I had a proactive mortgage broker who said she would seek clarity on the reasons for the mortgage provider choosing this option.  It transpired that the surveyor had phoned the lender directly to discuss the report.  Since this is not common practice, the lender had reacted to protect themselves from making a loss.

The main issues communicated by the surveyor were: cracks in the ceiling’s plasterwork, possible blowing in the external render, rotten wooden windows, and the potential for issues with the drain due to the location.  Rather than argue with my mortgage provider I chose to use this feedback to renegotiate the price.  The seller’s estate agent was very reasonable and after discussing the reasons for the £15,000 retention we able to mediate an agreeable reduction in the price to renegotiate the property value.

I suppose it was my naivety that led me to believe that mitigating this additional cost by renegotiating the overall price would be a pretty pain-free solution.  Of course, it was only when I went back to my mortgage broker did it dawn on me that this change in price meant a change to the Loan to Value amount.  Lenders use this to calculate the interest rate of a mortgage.  There was a chance that if the change in paperwork took too long to process the seller would pull out.  Thankfully, it did not take long for the new documents to arrive.

Knowing this, I had organised to borrow £15,000 from family and to pay them back once the bank released this amount back to me. 

What neither the mortgage broker nor I expected was for the retention to go up!  This time I was understandably frustrated and nervous that the property purchase would fall through. The new retention was significantly larger.  Thankfully, I had a particularly good mortgage broker.  Immediately she came up with a plan to quiz the incumbent mortgage provider as to since this should not happen.  As well as this, she set out to find a different lender just in case the current one was unwilling or unable to revert to the original retention amount.

After a lot of back and forth, the mortgage provider admitted a clerical mistake and offered compensation for the trouble caused.  The silver lining was that my mortgage broker’s search for a different provider returned an offer with a much better interest rate, so I ended up switching anyway to save money in the long term.  I would add that the couple I was buying from were in no rush to sell and had no chain, so this change went unnoticed.  

If I were to give any advice based on my experience, find an independent mortgage broker you like, and build a positive relationship with them.  They will ultimately be your liaison with a mortgage provider, so if any unexpected bumps in the road appear you can be assured it will be in the best hands.”

Thanks to Steven for sharing his experience.