Retention questions

TimTheComposer

Hi

We are in the process of buying a property at £365k. The Abbey's valuers valued it at £380k but said £20k of work needs doing on an annexe to the main house and the property will then be valued at £400k (clear enough).

However, Abbey are imposing a retention of £20k. This seems totally illogical and unreasonable to me - the house has valued up at well above the purchase price - and we need our £20k to do the building works, and can't spend it if Abbey have got it (even if they will give it back after the works are done - it's no use then!).

Can anyone explain what's going on here? And how the retention process actually works - e.g., what are the consequences if we DON'T get the work done? Would the extra £20k we've paid count as if we'd made a lump sum overpayment?

I would also warn anyone thinking of taking one of Abbey's apparently good deals. They are, in my personal experience, incredibly rude, unhelpful, bureaucratic and slow! :mad:

If £20k seems a high retention - they were initially imposing a £280k retention! (i.e. the entire mortgage amount). I only got this reduced by speaking personally to the surveyor who gave me a grilling to make sure I was "serious" about making the property into a family home and wasn't going to sell bits of it off. As if it's any of their business!

Cheers
Tim

clutton_2

illogical as it is - this is exactly how retentions work - they keep the money - you borrow it from somewhere else, do the work, the lender pays you back when the work is done and certificated if necessary

what sort of works need doing for £20k ?

TimTheComposer

Basically the house (early 19th century) is in 2 parts, the main part which is all restored and fine, and an old "servants quarters" which is dilapidated. Even though the main part is worth more than we are paying for both parts together, there is still this damn retention.

£20k is actually more than the work will cost - we have quotes for about £16k for all the work (replastering, new electrics, new plumbing, some damp coursing). However it's a major pain in the backside (to be polite!) because we need the money to pay the builders, not to pay the greedy bankers.

Just seems so utterly stupid and unreasonable that they are willing to miss out on 25 years of interest from us, because we are quite likely to walk away now - and the value (according to their own professional!) is considerably more than we are paying for it - before we've even done any work! Not surprising the banks are in a mess really!

cattie

TimTheComposer wrote: »

I only got this reduced by speaking personally to the surveyor who gave me a grilling to make sure I was "serious" about making the property into a family home and wasn't going to sell bits of it off. As if it's any of their business!
Cheers
Tim

But it is their business, they wanted to ensure you were buying the house with a residential mortgage for use as a family home & not looking at it as a business proposition, for which you would need an entirely different & more costly mortgage.

TimTheComposer

Well, I guess you are right cattie, but that isn't what bothers me so much. Why would there be a need for a retention when the property is already worth a lot more than I'm paying for it, and they have agreed that I'm "serious"? Normally, as far as I understand it, retentions are a) for quite small sums such as a few thousand pounds and b) are for when the purchase price is more than the property value without the work being done... no?

clutton_2

why not go to a different lender ?

TimTheComposer

Well clutton we're under quite a bit of chain-related time pressure now, and besides, we've paid the £995 application fee and got a pretty good rate locked-in for 3 years that is no longer available afaik... Fortunately I can JUST about afford to pay for the building costs out of savings without getting a personal loan for 20k (which, being non-mortgage debt-free, would be galling!), but we'll run into trouble when the inevitable building over-runs happen. I'll also be incentivised to use cheaper materials etc etc, which is a nuisance and can't be good long-term for the mortgage company! (I'm hardly motivated, other than through personal pride, to do a good thorough job on the building now am I!)

jill2002

TimTheComposer wrote: »

. Fortunately I can JUST about afford to pay for the building costs out of savings without getting a personal loan for 20k (which, being non-mortgage debt-free, would be galling!),

Tim, You do understand that you will have to find an extra £20,000 on top of your deposit to purchase the property? Then find money to do the work, after that you will need to get a re-inspection done by the Abbey (£65) and as long as the work has been done to their satisfaction, they will then loan you the rest of the mortgage (£20,000 retained).

To clarify :- Purchase price is £365k You were borrowing £280k (deposit £85k), now Abbey will only loan you £260k so the deposit you will now have to pay is £105k.

TimTheComposer

Hi jill2002, yes I do realise this. It just means that my contingency fund for building works / life in general is being used up to pay off Abbey.

It seems that I am not legally obliged to ever tell them that the work has been done and get a reinspection, so assuming I don't urgently need the 20k when the
work is complete, it seems sensible to leave it and be paying off a smaller mortgage, with smaller monthly payments too of course. Or I could pay what I was anticipating paying (on the larger amount) and in effect reduce my term. So it does have a silver lining of sorts.

I believe the figures are £273750 and £254750 by the way ... :-)

clutton_2

""It seems that I am not legally obliged to ever tell them that the work has been done ""

if you dont tell them the work is done - then they wont release the retention

TimTheComposer

Yes but what I'm saying is, I might not need that money back, so I will treat it effectively as a one-off overpayment of £20k. Do you know if there are likely to be any penalties for doing that? i.e. never telling them the work has been done, never claiming back my 20k, and therefore never paying interest on 20k of the mortgage? Will it just be as if I'd only borrowed 255k instead of 275k?