Help understanding retention please!

IBJackJones

I know this sounds a little confusing :think:

holly_hobby

Hi,

A partial retention is in respect to non-essential repairs that the valuer has spotted - the 5k is essentially the estimated costs of works.

What it means to you is that the lender is withholding 5k of the agreed mortgage amount, which means :-

1. the vendor completes the works pre- completion, you have the property re-inspected (usually reinspection fee involved), have the retention removed, and a new offer for the full requested mortgage amount of 90k issued, where you plod along to completion just requiring your 10k deposit as originally planned.

2. the vendor refuses to complete the works pre completion, so you will need to fund the 5k retention from your own funds (this applies even if the vendor reduces the price by 5k - the 5k retention stands regardless of any movement in the agreed pch price). Meaning as it stands (and if the vendor does not reduce the pch price) your mge advance will actually be 85k, and you need to provide 15k deposit (original 10k & 5k retention)

3. so lets say you agree and fund the 5k difference and complete.

4. its now your choice if you have the reqd works completed and have the lender re-inspect to release the withheld 5k (ie effectively refunding the 5k you had to find), but remember this will effectively increase your mge from 85k to 90k and increase your repayments and interest you'll be charged on the said amount, and your LTV will increase (this exercise must all occur within 6mths of completion)

OR

You don't have the works done at all, or do so at your own leisure in excess of the 6mths, and don't apply to drawdown the withheld 5k.

So the crux here is ... if the vendor won't do the works pre completion, you need to find the 5k yourself to complete, to which if you can't find the 5k you're a bit snookered !

Hope this helps explains

Holly x

IBJackJones

Thanks a bunch for taking the time to explain that Holly. It really does make so much more sense than it did before.

holly_hobby

Not necessarily, but it does mean that your status (income etc and possibly a survey) will be reassessed should you wish to drawdown the extra 5k for what will then be classed as home imps (as it will be essentially assessed as further borrowings/further advance).

To be honest, where peeps have access to the savings capital to meet a retention, esp where its only a relatively small one, they often choose not to bother releasing the retained amount (even if works are fully completed within the initial 6 mths), given the re-inspection fees, and that they will be paying interest on an increased mge amount in any event, many choose to leave the mge borrowings as they are.

But the choice will be yours.

Hope this helps

Holly