Property Tips by Chartered Surveyor Ian Rock FRICS  –  from the Haynes House Manual series

Why do banks sometimes hold back part of the mortgage as a ‘retention’

– and what can you do about it?

As a purchaser it’s usually a good sign when you hear that the valuation surveyor has been booked visit the property you’re buying. This isn’t strictly for a proper survey although sometimes it’s refered to as a ‘valuation survey’.

The surveyor is instructed by the mortgage lender to take a quick look around to confirm that the place isn’t visibly collapsing and the price you’ve agreed to pay is broadly acceptable. The main aim is to reassure the lender that they could get their money back if one day they had to repossess the property and sell (‘liquidate’) it to recover their capital (plus interest, plus fees).

One of the questions on most mortgage lenders’ valuation forms is a box entitled ‘Essential Repairs’. Depending on the condition of the property, and the attitude of the surveyor completing the report, this may include some fairly major repairs along with a recommendation to keep a hefty retention of a few thousand pounds to broadly cover the cost of the works.

Issues such as suspected pervasive damp and timber decay,  roof leaks, missing services or structural problems are the sort of defects that lenders keep retentions for. The extent to which such issues are flagged up will also very much depend on which mortgage lender you’re using – some banks dislike keeping retentions, others positively encourage them.

As a rule, the bigger High Street names tend to be more relaxed in their approach than small ‘daytime TV lenders’.  At the end of the day it’s up to the bank’s underwriters whether they keep a retention, by holding back part of your loan.

If they decide to impose this on you, a sum of between £1,000 and £5,000 is normally retained until repairs identified in the report have been done or specialist reports obtained, whereupon a re-inspection by the surveyor may be instructed.In practice lenders rarely bother to check, and may release the funds upon receipt of an estimate for repair works.

The rationale for this approach is that any unless major defects are urgently dealt with they could end up being neglected for many years, seriously reducing the value of the bank’s security. But in reality this is a rather odd way of doing business, since by keeping back a few thousand pounds for the cost of repairing a flat roof the lender is withholding the money that you may well need to pay for the works!

Some more enlightened lenders will simply require an ‘undertaking’ – a written promise that you will sort out the listed repairs. Otherwise you could perhaps bridge the cost by paying for the repairs on your credit card and then immediately apply for the retention to be released before the card payment is due – although obviously this depends on getting the timing right.

See Rightsurvey.co.uk for a quick guide to survey prices

Check out our other posts for more info that will help you pay the right price for the right property.

We would always recommend using RICS certified surveyors in every instance – don’t get caught out, get instant quotes for RICS surveyors here.

 Ian Rock’s Rightsurvey property tips are taken from the Haynes House Manual series.