Renovation Mortgages Explained

What types of mortgages can you get?

No two renovations are the same, and as such, there isn’t a one-size-fits-all buy-to-renovate mortgage. One important choice, for example, is what you plan to do after the project is completed.

• Construction to permanent mortgages: This mortgage has two stages built in from the start. The first stage consists of a renovation mortgage, normally interest-only, and then once the refurbishment is complete, it converts to a conventional mortgage.
• Construction-only mortgages: With this option, you commit just to the initial mortgage for the renovation, and then once you’ve finished, you go through a separate mortgage application for a second, standard mortgage to pay off and replace the first.

Funds from a buy-to-renovate mortgage are often released in stages as works are carried out, with interim property inspections to check on progress. In some cases, part of the funds may be withheld until the renovation is completely finished and the property is valued.

If you choose a staged payment mortgage, it’s important to check whether payments will be made in advance or arrears. If the latter, you’ll need a way to fund the project yourself in the meantime.

Getting a conventional mortgage for a fixer-upper

Depending on the scale of the work involved and your finances, you might decide that you don’t want a specialist mortgage but that you’re happy to get a conventional mortgage just to cover the purchase and not the renovations.

This can be an affordable way to get on the property ladder. It is ideal for people who plan to renovate over the long term, who can afford it, and who have building skills or the financial or practical support of family to help carry out work.

You always have the option of applying for an additional loan, either at the same time or later, when your financial position is stronger or the property’s value increases.

How a broker can help if you need to finance a renovation project

Because buy-to-renovate mortgages are a little less commonplace than standard mortgages, they can be more difficult to find, and it can be harder to compare costs and rates across the different finance options.

Working with a broker who specialises in renovation mortgages is invaluable here. They will have relationships with relevant lenders and be able to help you understand your options simply and clearly.

Without the help of a broker, you could find yourself paying over the odds for your mortgage or even being declined, either because you’ve not approached the right lender or haven’t chosen the right product for your circumstances.

Make an online enquiry now, and we can match you with a broker specialising in buy-to-renovate mortgages.

Which lenders offer renovation mortgages?

Not every mortgage lender will offer buy-to-renovate mortgages, but this is where your broker proves their worth. They’ll be looking to the more niche lenders, including smaller building societies. Lenders who offer a self-build mortgage will often carry a renovation mortgage as part of their range.

Ecology Building Society, for example, offers a renovation mortgage open to a wide range of properties, including derelict buildings. They will lend up to 90% of the purchase price in the first instance and more throughout the renovation as the property value increases. They also offer discounts on interest rates for renovations that improve energy efficiency.

You should normally expect to pay slightly higher rates on these mortgages because the lender’s risk is higher. Once the project is complete, though, you should be able to switch to a cheaper conventional mortgage if you want to.

Eligibility criteria

You’ll probably find that most buy-to-renovate mortgages will be considered on a case-by-case basis, as each project’s specifics will differ. However, there are still a few key eligibility criteria to keep in mind:

• Deposit: Unlike a conventional mortgage, where you can expect a 90% LTV (loan-to-value) as standard and sometimes even 95%, you should be prepared to put down around 25% as a deposit on a renovation mortgage. The higher deposit requirement reflects the lender’s higher risk.
• Credit history: whether you have any incidents of bad credit could impact your eligibility for a buy-to-renovate mortgage. Get a copy of your credit file, check for inaccuracies and be honest with your broker and lender about any credit issues.
• Development experience: lenders may consider any previous property development experience and will also likely look at whether you’re a first-time buyer. If you are, you may need to approach a more specialist lender. Your broker can help you here.
• Property type: renovation projects are often older properties or non-standard construction, such as timber-framed or concrete, which could limit the number of lenders willing to offer a mortgage, potentially increasing the deposit requirement or interest rate.

Alternative finance options

We’ve already talked about the possibility of a conventional mortgage, potentially alongside an additional loan, as an alternative to a buy-to-renovate mortgage, but are there any other ways to finance a renovation project?

One option is a bridging loan. This type of short-term finance provides a way to fund a purchase or project while you’re waiting for a chain of events to fall into place. In this case, it could be to fund both the purchase and renovation costs until you’re able to apply for a conventional mortgage upon completion of the work.

There are pros and cons to bridging loans. They are flexible and faster to arrange and can be used in circumstances where you can’t get a mortgage, for example, if the property you’re buying isn’t yet habitable. On the downside, they’re usually more expensive.

Other things to consider

Property development is never straightforward, and renovation costs are renowned for being hard to keep within budget.

Before you take the plunge, make sure you’ve considered all of the potential sticking points, including:

• Unexpected costs: Most renovation projects go over budget, so be sure to build in a good contingency for unexpected costs. These could include general building works but also surveying costs, design fees, and planning permissions.
• Insurance: Standard home insurance may not cover a renovation project, so get advice from your broker and make sure you’re covered.
• Your own skills: Be honest about your abilities, both in terms of DIY and project management. It can be a false economy to try and do things yourself that you’re not totally confident about, and this can have cost implications.
• Planning permission: most smaller renovation projects won’t require it, but larger structural works may, and it’s a time-consuming process with results not always guaranteed.
• Timeframe: Be realistic here and build in a good contingency, as things normally take longer than you expect! Check for any limiting terms on your buy-to-renovate finance that could mean you incur penalties.

Speak to a broker who specialises in fixer-upper mortgages

If you’re ready to take the leap and start a renovation project, make sure the finances go smoothly by finding a broker who specialises in buy-to-renovate mortgages. You’re likely to run into plenty of hurdles along the way with a fixer-upper. You don’t need your mortgage to be one of them!

All of our advisors have their areas of expertise, so we can find someone who understands your unique needs.

Give us a call now on 0330 818 7026 or make an enquiry via our quick online form, and we’ll assess your situation and match you with the broker that best fits your circumstances.