What is mortgage retention and what does it mean for you?

Key takeaways

• Mortgage retention is when a lender holds back part of your mortgage funds until essential repairs are completed.
• Common triggers include damp, structural damage, roof issues, unsafe electrics, and heating problems identified during the survey.
• You have options: negotiate with the seller, fund repairs yourself, apply with a different lender, cover the shortfall, or walk away.
• Typical timeframes: lenders usually give 3-12 months to complete repairs, and retained funds are released within 7-14 days once work is signed off.
• Interest is only charged on the funds that have been released, not on the retained portion until it's paid out.

What is mortgage retention?

Mortgage retention is when a lender agrees to give a customer a mortgage, but withholds a portion of the funds until essential repairs or improvements have been completed. While mortgage retentions are relatively uncommon, they can significantly impact the home-buying process.

Lenders usually release the full mortgage amount on completion day. However, if a survey identifies issues that could affect the property's value or safety, the lender may hold back some funds. They'll release this money once you've provided proof that the issues have been fixed.

A mortgage retention doesn't mean your mortgage application has been rejected or your original offer withdrawn. It simply means your mortgage approval comes with conditions that need to be met.

Learn more: What to do when the bank says 'no'

How does mortgage retention work?

Lets say you're a first-time buyer, for example, and are looking to borrow £250,000 towards your first home. You obtain a Mortgage in Principle from a mortgage broker, followed by an Agreement in Principle from a lender, and everything’s looking good. Then, when you find a property you’d like to purchase, you submit a formal mortgage application to the lender.

The lender sends a surveyor to carry out a valuation on the property, and the surveyor identifies issues with the roof. The lender approves your £250,000 mortgage application but says £10,000 of the loan will be held back until the roof has been repaired.

If you'd still wish to purchase the property, you'll either need to make up the £10,000 shortfall yourself or convince the seller to reduce the price. Then, once the work is complete and the lender has been given proof, they'll release the remaining funds. The funds will be paid to you, the seller or your solicitor, depending on the situation and timing.

💡 Mortgage in Principle (MIP) is a document given by a bank, building society or a mortgage broker, indicating how much you may be able to borrow based on basic information about you and your finances.

💡 Agreement in Principle (AIP), also known as a Decision in Principle, is a document you get from the lender you want to get a mortgage from, confirming what you could be offered for a mortgage. The amount shown on your Agreement in Principle is not a guarantee of what you will be offered; however, as you will still need to go through the full mortgage application, which includes eligibility and affordability checks

Do mortgage retentions happen often?

No, mortgage retentions don't happen very often. A mortgage retention can be frustrating, but many customers go on to buy the same property or find an even better home. You have more options than you might think, particularly when you work with a specialist mortgage broker who can access the whole market.

What types of repairs trigger mortgage retention?

Mortgage retentions are rare. They're usually only applied to serious issues that impact the property's value or safety, not cosmetic problems or general wear and tear.

Common causes include:

• Damp or mould
• Structural damage or subsidence
• A roof in poor condition
• Unsafe electrics or outdated wiring
• Boiler or heating problems
• Asbestos or spray foam insulation

What is a 100% mortgage retention?

A 100% mortgage retention is when a lender holds back the full mortgage amount until major works are completed. This is extremely rare. A 100% mortgage retention usually only happens when the property is deemed uninhabitable or unsafe, and often follows a recommendation from the surveyor or structural engineer.

In this case, you usually won't be able to buy the home unless the seller agrees to carry out the work before completion, or you can find another way to fund the purchase and pay for the repairs yourself.

What can a borrower do if a mortgage retention is applied?

A mortgage retention doesn't have to stop you from buying a home. Here are a few things you can do if a mortgage retention is applied:

1. Negotiating with the seller

Your solicitor will usually do this on your behalf, working with the seller's solicitor to come to an agreement. The seller may be willing to fix the problem before you exchange contracts or reduce the price to reflect the cost of the work.

1. Obtaining quotes and funding the work independently

If the retention is manageable and the repairs are straightforward, you might prefer to get quotes from suitable contractors and fund the work yourself.

1. Applying for a mortgage with a different lender

You may be able to find a lender who'll offer you the full mortgage amount without retaining a percentage of the funds. Here at Tembo, we have access to thousands of mortgages from more than 100 lenders, and our average time to mortgage offer is just 10 days.

1. Covering the shortfall

If you don't have enough money in savings to make up the shortfall, there may be another way, such as a family-assisted mortgage or personal loan.

Before making any decisions, we recommend speaking to a mortgage adviser and potentially a financial advisor. They'll help you weigh up the costs and risks, while ensuring that any borrowing is affordable and won't impact your other financial goals.

Here at Tembo, we've got a number of tricks up our sleeve which could help you bridge the gap between your savings and the amount your lender’s willing to release now.

1. Walking away

If the retention is large or the property has major defects, you may decide it's not worth the risk. This can be disappointing, especially if the property initially seemed perfect. However, if you continue house hunting and find a home that passes its survey without issues, you may be glad you made this decision!

Learn more: What to look for when viewing a house

How long does a buyer have to finish the repairs after a mortgage retention?

Most lenders give between 3 and 12 months from completion to finish the required work. The exact deadline is set out in the mortgage offer. Major structural jobs may need a progress check after six months, while smaller fixes often get up to a year. If the deadline is missed, the lender can refuse to release the retained funds or ask the borrower to reapply.

Will interest be charged on the money the lender holds back?

Usually, interest is calculated only on the funds that have been released. The retained portion does not start accruing interest until the lender pays it out. For instance, if £10,000 is retained on a £250,000 loan, interest is charged on £240,000 until the repairs are signed off. Some lenders add a small fee for extra inspections, so always read the mortgage offer carefully.

How are the retained funds released once the work is done?

Follow these steps:

1. Collect invoices, photos and any completion certificates for the repairs.
2. Ask the solicitor or mortgage broker to send this evidence to the lender.
3. The lender may arrange a re-inspection, which usually costs £120–£200.
4. If the surveyor confirms the work is complete, the lender releases the funds, normally to the solicitor, within 7–14 days.