Noob mortgage retention question.

alainax

I've done loads of searching, but im hitting a brick wall ( and preferably not a damp one) please help!

I had gathered that if we want to purcahse a property at say 85k, and it comes back surveyd with a 5k retention, that the bank wil only give us 80k, we pay the 5k, do the work then ask for our 5k from the bank ( with all relevant docs etc).

Here is where I am confused. Lets say the property values at £110k ( in its current condition) and £150 when works complete. The survey states 5k retention, and we get an offer accepted of £85k.

Would we only get 80k till the works are complete, as in, the property is valued at what you pay for it, and the 5k is just an incentive to make you do the work. Technically disregarding both current valuation and value when works complete?

Or... as is is valued as more than 5k over the amount we are going to pay for it, we get the whole amount?

soooo confused!

Thanks for your help

kingstreet

A mortgage loan to value is based on purchase price or value whichever is the lower. Whatever the property will be worth after repairs isn't taken into account.

If you ask for £85k, the £5k retention will mean you get £80k to complete the purchase, so you'll have to make up the difference with an increased deposit. The £5k will be released after the work has been done.

Worth bearing in mind, if you get estimates for the work and it comes back at less than £5k, the surveyor will normally reduce the retention to the actual cost in the estimates.

kingstreet

if we want to purcahse a property at say 85k, and it comes back surveyd with a 5k retention, that the bank wil only give us 80k

Don't forget you need to put down a deposit. If you are buying for £85k, you'll need to put down at least 10% as a deposit. You are dealing with a retention of some of the mortgage advance.

alainax

Thank you for your reply, that clarifies the ltv being on purchase price or value whichever is the lower. That helps alot. So realisticly, the higher values are just for indication, and are not taken into consideration? As the for the ltv, the value of the property is only what you pay for it (presuming you are paying less that what it is valued at)

Ah yes the deposit.. may be worth a mention! So for example, I purchase the house for £85k, I put forward £8.5k deposit, so my loan is £76.5k. Minus the £5k retention, so that bank will give £71.k. I must put forward the 8.5k plus the 5k myself.

I tihnk I have my head around it! Thanks.

muh3

No the bank value the property on 80.000£ you need the 10% of that 8.000£ + The money you offer over the 80.000£ which is in your case 5.000£ so you need 13.000 all together and the mortgage would be based on 72.000£

edit: I would mortgage for only 2 years and remortgage after that, the value will be then 115.000£ + - the market price, that will give you a better LTV an a better interest rate.

kingstreet

alainax wrote: »

Thank you for your reply, that clarifies the ltv being on purchase price or value whichever is the lower. That helps alot. So realisticly, the higher values are just for indication, and are not taken into consideration? As the for the ltv, the value of the property is only what you pay for it (presuming you are paying less that what it is valued at)

Ah yes the deposit.. may be worth a mention! So for example, I purchase the house for £85k, I put forward £8.5k deposit, so my loan is £76.5k. Minus the £5k retention, so that bank will give £71.5k. I must put forward the 8.5k plus the 5k myself.

I tihnk I have my head around it! Thanks.

Spot on!

alainax

kingstreet wrote: »

Spot on!

lol thank you :T

Pupnik

I hope the OP doesn't mind me jumping in but I have a related question

We have a £2,000 retention on a property we are paying £72,000 for with a deposit of £34,000. So we were originally going to borrow £38,000 but now the bank will lend us £36,000 upfront and the extra £2k after the work is completed.

My question is can we just leave that £2k? The truth is this has dragged on so long now we could probably make up the £2k ourselves now. The retention was for damp work but the damp report we have had done completely contradicts the valuation/ HBR and seems to think there is significant damp in different rooms to the suspected damp in the initial report! This makes me think that there may well not be a major problem, and certainly not a problem that the damp report quotes for (just shy of £2k). Basically I don't want to pay all that money to fix a problem which may or may not exist just for the pleasure of borrowing an extra £2k.

Sorry to be long winded!

If you need more details to make sense of this, the HBR recommended a damp expert check out the bathroom and that the damp readings in the rest of the property were okay. The damp report doesn't even mention the bathroom and says the damp readings are high in the front and back downstairs room, but that the seller had the windows shut on a hot day and there may be a leaking downpipe causing it, but of course still quoted us for a full on DPC on those two rooms. I'm not sure whether the bank will base their retention on the original valuation (which had DPC in the bathroom as a requirement) or the new one. So confusing! At the moment I'd prefer to pay the extra £2k myself, try and find the cause of any possible damp, and borrow my dad's damp reader and just keep an eye on it before rushing in to spend needless money on it.

kingstreet

You can choose not to have the work done and not to draw down the £2,000 retention. It's entirely up to you.