what happens with a retention?

amber_man

Talk me through this as if I am really stupid.

Damp and timber survey revealed some work that needed to be done - to the tune of 3k. Vendors promptly dropped price by 3k. We decided to go ahead. Bank has put 3k retention on mortgage.

I understand this means they will lend us the full amount minus the 3k and we need to do the work. When we do the work, do they reduce the mortgage owing by 3k or do they give us the cash? Do we need to put down an extra 3k on our deposit to start with?

Just trying to work out if this gives us a cash flow problem. Probably not, but I can't quite get it straight in my mind and mortgage broker is away until after the weekend.

Thrugelmir

The cash retained is released once they are satisfied that the work has been undertaken.

amber_man

I understand that. Is it released to me - as in, into my account - or released as in, knocked off the mortgage balance?

eddddy

As an example...

Let's say the purchase price is £100k and the bank have agreed to lend you £85K...

On completion, they will only release £82k. (So you need to find £18k in cash to complete.) They will give you the remaining £3k once the work is done.

So initially your mortage balance will be £82k, but once the work is done, your mortgage balance will increase from £82k to £85k.

AdrianC

amber_man wrote: »

I understand that. Is it released to me - as in, into my account - or released as in, knocked off the mortgage balance?

They would lend you £100k.
They hold back £3k.
You receive £97k. You owe £100k. £3k is sitting, un-drawn-down, on the account.

When you prove the work is done, you get that £3k paid to you.

You could, of course, just pay that £3k straight back in to the mortgage account and reduce the outstanding balance to £97k.

amber_man

Thanks, Adrian. That is what I wanted to know.

Now the works recommended are some repairs to roof and chimney which we will definitely be getting done, and a chemical damp course and replastering which I am VERY dubious is necessary. Read a lot about rising damp and apparently it doesn't exist. The test was done with one of those wall-meter things and the report sounds like it was written by a salesman for the company that makes the chemical damp proofing materials.

If I get the roof and chimney works done and show evidence, will they let me draw-down the cash to cover just that? We can live without that 3k - so what If I don't get the work done at all?

nicmyles

We had a retention of £2k on our flat for some repairs they said needed doing to a window. We didn't see the repairs as urgent or necessary, and we didn't need the £2k, so we just bought the flat and ignored it.

Came back to bite us at the end of our fixed rate, though, as our lender required that work to be completed and certified before they would agree any further fixed rate. This was never made clear to us at all, otherwise clearly we'd have done the work!

amber_man

Oh my. I never would have thought about that. We're not planning to sell any time soon, but the mortgage is a three year fix so I suspect we'd have to get it done before then...

Does anyone know what kind of evidence they require for having the work done? Receipts? From a registered contractor? (Registered with whom?)

Nebulous2

amber_man wrote: »

Oh my. I never would have thought about that. We're not planning to sell any time soon, but the mortgage is a three year fix so I suspect we'd have to get it done before then...

Does anyone know what kind of evidence they require for having the work done? Receipts? From a registered contractor? (Registered with whom?)

Long time since I did anything like this, but when I did the surveyor who recommended the retention came back out and reinspected before the money was released.