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Retention Question Please

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Heres the scenario chaps.............

Trying to buy a cottage at auction and our maximum bid will be £215k

Will have a deposit of 80K , so need a mortgage of £135k

The cottage needs TOTAL renovation and we will have £75k of our own money to do the work, if we win it

The question is , what are the chances of the mortgage company putting a retention on it ? even though we will have approx 62%LTV

as said we will have 75k of our own money to do the work , but how would we be able to afford to do the work IF the bank puts a big retention on it

Your thoughts would be appreciated

Comments

  • GMS
    GMS Posts: 5,388 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    What needs doing to it? Is any of the work needed structural?

    Difficult to say but it is a gamble. Could be a total retention in place meaning no funds until works done which would mean breach of contract for sale most likely.

    May need to use bridging finance if mainstream finance not possible.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Is the property habitable?
  • johnwey
    johnwey Posts: 262 Forumite
    GMS wrote: »
    What needs doing to it? Is any of the work needed structural?

    Difficult to say but it is a gamble. Could be a total retention in place meaning no funds until works done which would mean breach of contract for sale most likely.

    May need to use bridging finance if mainstream finance not possible.

    Everything , plumbing , gas , electrics , windows doors , stripped back to brickwork , walls knocked down , total gut

    no structural work
  • johnwey
    johnwey Posts: 262 Forumite
    Thrugelmir wrote: »
    Is the property habitable?

    yes its habitable , just

    an old girl lives there and hasnt touched the place for 50 years or more
  • johnwey
    johnwey Posts: 262 Forumite
    I realise I cant bid at auction unless I have a mortgage offer in place from the bank............ have 3 weeks from now and only just applied :eek:
  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    You can bid but it's a high risk activity because you could lose your deposit if you can't get the money in time. Most vendors will probably be tolerant for a few weeks but don't count on it, get it done ASAP.
  • kingstreet
    kingstreet Posts: 39,256 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Once you have the valuer's report back, you'll know if you can proceed or not. A total retention is definitely something you couldn't deal with. However with your extra £75k, a retention of anything less than that would mean you'd use some of that cash to make up the difference with the reduced mortgage at completion.

    All you then need is a contractor who will accept part-payment for the very essentials until you can get the additional mortgage money released by providing evidence to the lender that those essential repairs have been carried out.

    Here's an example;-

    Agree to buy for £200,000
    Deposit on the day £20,000

    Balance to pay £180,000

    Mortgage £135,000
    Retention £50,000
    Mortgage released £85,000
    Balancing deposit £95,000

    Funds paid on completion day £180,000

    Reside of own funds £155k - £20k - £95k = £40k.

    Upto £40k can be paid to contractor, with any balance being paid from the released retention money, £50,000, on receipt from lender.

    You also need to get your solicitor in to view the legal pack at the auctioneers asap.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • johnwey
    johnwey Posts: 262 Forumite
    kingstreet wrote: »
    Once you have the valuer's report back, you'll know if you can proceed or not. A total retention is definitely something you couldn't deal with. However with your extra £75k, a retention of anything less than that would mean you'd use some of that cash to make up the difference with the reduced mortgage at completion.

    All you then need is a contractor who will accept part-payment for the very essentials until you can get the additional mortgage money released by providing evidence to the lender that those essential repairs have been carried out.

    Here's an example;-

    Agree to buy for £200,000
    Deposit on the day £20,000

    Balance to pay £180,000

    Mortgage £135,000
    Retention £50,000
    Mortgage released £85,000
    Balancing deposit £95,000

    Funds paid on completion day £180,000

    Reside of own funds £155k - £20k - £95k = £40k.

    Upto £40k can be paid to contractor, with any balance being paid from the released retention money, £50,000, on receipt from lender.

    You also need to get your solicitor in to view the legal pack at the auctioneers asap.

    thanks very helpfull

    my builder who is a close friend and very good at his profession , 35 years experience , said the house is structurally sound

    so if we instruct the bank to do the cheapest survey , would that go against our favour ?

    and I suppose if the retention was massive we wouldnt loose approx £1k on a full structural survey ?
  • kingstreet
    kingstreet Posts: 39,256 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    The lender won't care what type of survey you choose. If the surveyor has any doubts when carrying out the lender's valuation he'll ask you to obtain specialist reports on the relevant issues - timber, damp, electrical, roofing etc. I would imagine you'll have these done anyway, as part of the renovation process.

    Chances are, if you've had your builder round the property a couple of times you won't find anything unusual coming up on the valuation. If the surveyor feels there may be structural problems he'll recommend a structural engineer's report, regardless of whether you get a basic mortgage report or a more in-depth survey.

    In this instance, I'd await the results of the valuation before I'd consider spending more money.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    johnwey wrote: »
    my builder who is a close friend and very good at his profession , 35 years experience , said the house is structurally sound

    Has your builder prepared a detailed costing of the works to be carried out?
This discussion has been closed.
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