Mortgage Retention Advice

Lolly88

I got my mortgage offer last week with a 4K retention. My independent building survey also indicated several issues rated as needing urgent attention - some of which corroborate the issues related to the retention indicated by the valuation survey.

My plan was to negotiate a price reduction with the vendor for the retention amount but not factor in the cost of other repairs highlighted in the report. I have instructed a further specialist survey which will be conducted tomorrow so I can fully understand the scope of the work needed and obtain a quote for the costs.

Anyway it got me wondering if the outcome of this survey indicates the cost of the work is a lot lower than the retention placed then where does this leave me? I’m assuming the lender won’t reduce by the retention amount based on the new survey results? Surely this undermines my negotiation position with the vendor as I imagine they will understandably only be potentially receptive to reducing by the amount of the actual cost of work?

bowlhead99

The lender won't lend the full 'potential' value of the property if the property needs work to make it sound. They will hold back funds to cover themselves for the risk that you don't do the work, until you have done the work to a proper standard. The money they hold back or retain, may will be quite a bit more money than it costs you in practice to get the issues fixed and made good and the property worth its proper valuation.

The issue for the lender is, for example: if the property is worth £100k with a roof but only has half a roof, the roof work might cost you £5k. But if you don't do the fixes, and you default on your mortgage payment and they have to sell your house quickly at auction to get their money back - it is not just the fact that money needs to be spent to fix the roof, it's the fact that it could take time to get someone to fix it, and the costs might go over the original budgeted estimate, and the fact you didn't fix it in the first place might have caused it to get worse and cost even more money to get right. So the house is not necessarily 'worth' £95k for a quick sale. For a start, it could only be sold to someone who had £5k cash in the bank to fix the roof, which is a smaller pool of buyers than those who are getting money from a lender to help them buy. With a market crash over the next year it could be worth a lot less than that as well, so the lender has risks and uncertainties.

So the amount they will want to hold back is probably going to be bigger than the most competitive estimate that you'll find for the work.

If the new survey recommends a different, lower, retention amount, your lender might be guided by that. However, it depends if the new specialist's role is to advise a house valuation and recommend a retention amount, or just to tell you what's wrong and what it would cost to fix. Cost to fix does not necessarily equal amount retained, as explained above.

eddddy

Lolly88 wrote: »

Anyway it got me wondering if the outcome of this survey indicates the cost of the work is a lot lower than the retention placed then where does this leave me? I’m assuming the lender won’t reduce by the retention amount based on the new survey results? Surely this undermines my negotiation position with the vendor as I imagine they will understandably only be potentially receptive to reducing by the amount of the actual cost of work?

There are no rules on price negotiation.

The retention may by £4k, the repair cost might be £3k, but the vendor might only offer a £1k price reduction.

Or the vendor might refuse any price reduction - perhaps because they couldn't afford to buy their new place, if they reduced the price...

... and/or because they think you will proceed anyway, without a price reduction, etc, etc. (Would you actually walk away, if they refuse a price reduction?)

So the onus is on you to work out the best negotiating strategy, to achieve what you want.

AlexMac

If I was the vendor (or even if I was you), I'd feel that

- your survey and the consequently implied remedial costs
and
- any retention your lender wishes to impose

were two separate issues. While the vendor might, or might not be prepared to reduce the price because of some hitherto unnoticed or invisible faults, they might well say that the retention is your problem. So to reply to your questions

Lolly88 wrote: »

...
Anyway it got me wondering if the outcome of this survey indicates the cost of the work is a lot lower than the retention placed then where does this leave me? ..?

Presumably relieved? Albeit with a short-term cash-flow problem in that you might have to find a couple of grand to do the work and bridge the gap?

Lolly88 wrote: »

...
I’m assuming the lender won’t reduce by the retention amount based on the new survey results?...

Maybe; maybe not. The lender won't even necessarily trust YOUR survey. They might think the original agreed price fairly reflected the condition of the property. So...

Lolly88 wrote: »

...
Surely this undermines my negotiation position with the vendor as I imagine they will understandably only be potentially receptive to reducing by the amount of the actual cost of work?

quite possibly. They might on the other hand be desperate to sell, so open to a reduction. It's a negotiation, not an exact science.

I have two relevant experiences;

My wife was selling and the buyer's surveyor (who we suspect was a family friend) came up with a picky list as long as your arm and they tried for a £26k price-cut. As it was a Victorian house, not a new build, she was so incensed that she wanted to tell them to go forth and procreate. I was quite keen to sell, so tried to moderate her response and we compromised; we settled on £7k off to reflect some damp and timber problems.

I bought a house a couple of doors up, and was given a mortgage... with a 100% retention. That didn't mean that it would cost more than the value of the house to fix... and I didn't get a 100% price-reduction; I just found another lender!

Good luck

Lolly88

The vendors are keen to sell and open to negotiations I was just unsure about how best to negotiate if the major work indicated by the valuation is less than the retention and how to balance that against the other urgent repairs needed also. But thanks for the replies. I think I’ll just wait and see the outcome from the latest survey and rethink my negotiation position from there.

Ozzuk

Don't forget you still need more deposit, even if they reduce, for example:

house 100k, 90% mortgage= 90k, 4k ret, 14k deposit needed.

Vendor offers 2k reduction

house 98k 90% mortgage= 88.2, 4k ret, 13800 deposit needed.

So a reduction is only saving you a fraction if my maths is correct. Which as I suck at maths it might not be!

Lolly88

Ozzuk wrote: »

Don't forget you still need more deposit, even if they reduce, for example:

house 100k, 90% mortgage= 90k, 4k ret, 14k deposit needed.

Vendor offers 2k reduction

house 98k 90% mortgage= 88.2, 4k ret, 13800 deposit needed.

So a reduction is only saving you a fraction if my maths is correct. Which as I suck at maths it might not be!

Not if I got the retention amount deducted which is what I’m after.

Thrugelmir

Lolly88 wrote: »

Not if I got the retention amount deducted which is what I’m after.

Lender will only release the retention upon completion of the works. In the meantime you'll need to fund the difference while paying for the works. .

kingstreet

Lolly88 wrote: »

if the outcome of this survey indicates the cost of the work is a lot lower than the retention placed then where does this leave me?

The surveyor will reduce/increase/remove the suggested retention once he has a copy of your report & estimate.

At the end of the day, the surveyor doesn't actually KNOW if ANY repairs are required so it's possible for a retention to be lifted altogether.

Lolly88

Thrugelmir wrote: »

Lender will only release the retention upon completion of the works. In the meantime you'll need to fund the difference while paying for the works. .

If the vendor drops the price by the retention amount which is what I would ideally like to negotiate then the retention is redundant, so there will be no difference to fund, just the cost of the works.

kingstreet wrote: »

The surveyor will reduce/increase/remove the suggested retention once he has a copy of your report & estimate.

At the end of the day, the surveyor doesn't actually KNOW if ANY repairs are required so it's possible for a retention to be lifted altogether.

Thanks, that's what I wondered. Helpful to know. Although is that standard practice? I assumed my lender would be the one calling the shots regarding the retention and not the surveyor.