Renovation Mortgages in the UK: A Guide for Fixer-Uppers

Dreaming of buying a fixer-upper and making it your own? Renovation mortgages are here to help you do just that. 

Whether the property needs a new roof, a modern kitchen, or a complete overhaul, the right mortgage can give you the funds to transform it. 

This guide will take you through how renovation mortgages work, what to expect, and the steps to take to get one.

Let’s get started!

What is a Renovation Mortgage?

A renovation mortgage, or “renovating home loan,” is a type of loan for properties that need renovation. 

This mortgage gives you the money to buy a property that needs work and to cover the renovation costs. 

Instead of being based on the current condition of the property, it’s based on what it will be worth once the renovations are complete.

This is particularly useful if you’re looking at houses that need significant work, like those with no kitchen, a leaking roof, or outdated wiring. 

Regular mortgages often won’t cover these kinds of properties, which is why a renovation mortgage could be just what you need.

How Does It Work?

Unlike a regular mortgage, a renovation mortgage is given in instalments. 

This is because the lender wants to ensure the renovation work is being completed before releasing all the funds. 

You usually get some money upfront to buy the property, and then the rest is given in stages as you make progress.

You may also need to have the property inspected at different stages to make sure everything is on track. 

Some lenders release funds in advance, while others wait until you finish specific stages, so it’s important to know which type you’re dealing with. It may not be the most flexible, but it ensures the money is used for renovating the house.

Who Can Get a Renovation Mortgage?

If you’re a property developer, a homeowner wanting your perfect home, or an investor looking to flip a property, this could be ideal for you. 

Even first-time buyers might find this a good option if they want something more affordable (since fixer-uppers tend to be cheaper).

Like any mortgage, there are some requirements. 

If you have a decent deposit (usually at least 15-20% of the total cost), a fair credit score, and an income that can manage the repayments, you could be eligible.

Different Types of Renovation Mortgage

Renovation mortgages come in various shapes and sizes, and picking the right one can make all the difference. 

Here are the common options you might come across:

• Construction to Permanent Mortgages – These start as renovation mortgages, typically interest-only while you’re renovating. Once you’ve finished, it turns into a standard mortgage. It’s like a mortgage with a makeover – tailored just for your project.
• Construction-Only Mortgages – As the name suggests, these cover just the renovation period. Once you’re done, you’ll need to get a separate standard mortgage. It can give more flexibility if you think the finished value will be much higher.
• Refurbishment Mortgages – If the property needs lighter work, maybe just modernising the kitchen or some fresh plastering, a refurbishment mortgage can give you what you need for cosmetic fixes without the heavy-duty building work.

How Much Can You Borrow for a Renovation?

The good news is that renovation loans are often based on the property’s value once it’s all done and dusted – not what it’s worth in its current state. 

Lenders typically offer around 75% of the estimated post-renovation value, so if your dream house is going to be worth £300,000 after renovations, you might be looking at borrowing up to £225,000.

Now, there’s a catch: the deposit. Renovation mortgages require a larger deposit than a standard mortgage. 

Think somewhere between 15-20% of the total project cost (including renovation costs). 

So if the whole budget, including buying and renovation, is £200,000, you’re looking at needing at least £30,000 to £40,000.

What Are the Fees and Costs You Should Expect?

Renovation projects can come with a load of extra fees that might not pop up with a regular mortgage. Here’s what to expect:

• Deposit: As mentioned earlier, a hefty 15-20% is required.
• Valuation Fees: Because lenders need to keep track of how things are going, you’ll likely pay for valuations at different stages.
• Higher Interest Rates: Renovation mortgages are seen as a bit riskier, so interest rates are often a little higher than standard mortgages.
• Legal and Surveyor Fees: For checks on the property to ensure everything’s above board.
• Insurance: Standard home insurance might not cover the property during renovations, so you might need specialist renovation insurance.

How Does Your Credit Score Affect Getting a Renovation Mortgage?

Your credit score is your ticket to getting a renovation mortgage. 

A higher score means lenders will feel more comfortable giving you cash, which could translate into better interest rates. 

If your credit score is low, don’t worry – there are still options, but you might find the interest rates a bit higher.

Specialist lenders do exist for borrowers with lower credit scores, but they might require more security or a larger deposit. 

The key takeaway? Keep your credit utilisation below 30%, pay off what you can, and avoid applying for lots of credit at once. This shows lenders you’re responsible and makes them more likely to approve your mortgage.

How To Get a Renovation Mortgage?

The best way to start is by getting organised. Find a mortgage broker who’s familiar with renovation mortgages – they’ll know exactly where to look for the right lender, especially if your property is non-standard or you’re a first-time buyer.

Be sure to get a good handle on your budget. Not just the cost of the house but everything – the renovations, the fees, the contingency for unexpected surprises (because they always happen). 

Then, get your documents ready, apply, and hope for a smooth approval process.

Can First-Time Buyers Get a Renovation Mortgage?

Absolutely! Renovation mortgages are not reserved for seasoned property investors. 

If you’re a first-time buyer, it could be a brilliant way to buy a property that’s affordable and truly make it yours.

However, be aware that lenders may scrutinise your application more closely since first-time buyers are typically considered higher risk. 

Working with a broker is often the best move for first-timers – they can help find lenders willing to take on your project.

What Paperwork Do You Need to Apply?

Getting everything ready ahead of time is a great way to keep the process moving along nicely. Here’s what you’ll need:

• Proof of ID: Passport or driving licence
• Proof of Income: Bank statements and payslips for the last three months (or SA302 tax returns for the last two years if you’re self-employed)
• Proof of Employment: A letter from your employer confirming your job status and salary
• Proof of Credit History: A credit report from Equifax, Experian, or another credit agency
• Proof of Address: A recent utility bill or council tax bill (dated within the last three months)
• Bank Statements: Last three months of bank statements to show income and outgoings
• Proof of Deposit: Evidence of your deposit, such as a savings account statement or a gift letter if the money is from a family member
• Planning Permission: If your renovation requires planning permission, you’ll need to provide the relevant documentation showing approval.
• Development Experience: If applicable, details of any previous renovation or development projects you’ve completed, especially for larger or more complex renovations.

Can You Use a Remortgage to Pay for Renovations?

If you already own a property and want to give it a bit of a facelift, remortgaging might be your best bet. 

By releasing some of the equity in your home, you could access funds for renovations without needing a separate renovation mortgage. 

The amount you can remortgage depends on how much equity you’ve built up and your current credit status.

Property Types That Might Not Be Suitable for Renovation

Not all properties are ideal for renovation loans. Some are seen as too risky or costly by lenders, making it hard to get financing. 

Here are a few types that may not qualify:

• High-Rise Flats – Lenders are often wary of giving renovation loans for high-rise flats because of possible structural issues and high upkeep costs.
• Properties Above Shops or Restaurants – Homes above businesses can be harder to finance since lenders view them as higher risk, especially due to noise or other disturbances from the businesses below.
• Older Properties – Very old homes, particularly those with serious structural problems, can be challenging to renovate. The repair costs might be too high, and the work could require specialist materials and tradespeople.
• Listed Buildings – Renovating a listed building involves strict rules, which can make the process slow and costly. Lenders may hesitate to finance these projects due to the uncertainties around costs and permissions.
• Non-Standard Construction – Homes built with materials like timber frames, concrete, or glass can be harder to finance as they may need specialised renovation methods that increase costs.
• Eco Homes or Unique Features – Properties with unusual elements, like thatched roofs or stained-glass windows, often need specialist skills and materials, which makes them riskier for lenders.

Alternatives to Renovation Mortgages

Renovation mortgages aren’t the only option if you want to spruce up a property. Here are some alternatives worth considering:

• Bridging Loans – Ideal if you need cash quickly and can repay the loan once renovations are complete. These loans are short-term and more expensive but flexible.
• Secured Loans – Also called second-charge mortgages, these are tied to your existing property but don’t affect your current mortgage rate.
• Personal Loans – You can use these for smaller projects. However, they’re generally capped at lower amounts, which might not cut it for larger renovations.

Tips To Get the Best Renovation Mortgage Deal

Getting the best renovation mortgage can make a big difference in how smooth your project goes. Here are some key tips to help you secure the right deal:

• Work with a Broker – A broker can help you find the best deals and lenders who are experienced in renovation projects. They can save you time and help you avoid common pitfalls.
• Get Pre-approved – Knowing how much you can borrow will give you a clear idea of your renovation budget and help you plan more effectively.
• Compare Lenders – Not all lenders are the same. Shop around or let your broker do it to find the most suitable lender for your needs.
• Check Your Credit – Improve your credit score before applying. Keep your finances stable – avoid big purchases or new credit applications in the months leading up to your mortgage application.
• Prepare a Strong Renovation Plan – Lenders like to see a clear renovation plan, including estimated costs and timelines. This shows that you’ve done your homework and helps build confidence in your ability to complete the project.
• Save for a Larger Deposit – The more you can put down as a deposit, the better your chances of getting favourable terms. A larger deposit also reduces the risk for the lender.
• Keep a Contingency Fund – Renovations can be unpredictable. Having a contingency fund of at least 10-15% of your budget will help you cover unexpected costs without needing to renegotiate your mortgage.

The Bottom Line

Taking on a fixer-upper can be one of the most rewarding property projects, but getting the right mortgage is key. 

Whether you’re a first-time buyer or an experienced property flipper, understanding how renovation mortgages work will help you get through the process smoothly and avoid unnecessary headaches. 

Consulting with a mortgage broker can make a big difference, as they can guide you to the best lenders and deals, saving you time and stress.

Get in touch with us, and we’ll match you with a knowledgeable mortgage broker who can help you find the perfect renovation mortgage for your needs.