Renovation Mortgages

Renovation mortgages are for people who want to buy a property that needs a little more than just new carpets and wallpaper. These types of home loans are only usually available from specialist lenders, but with Haysto’s help, you can secure the mortgage you need and get straight to work. 

What is a renovation mortgage?

A renovation mortgage is designed to cover the cost of buying and renovating a property. Unlike regular mortgages, it can be used to fund significant changes, such as fixing structural issues, modernising interiors, or even converting an old barn into a family home.

It’s a great option if you’ve spotted a property with potential but need financial help to bring it to life.

Why would you need a renovation mortgage?

Renovation mortgages are perfect if you’re buying a property that isn’t move-in ready or you want to add value to your current home. Common reasons include:

• Fixing major issues like subsidence, dampness, or a leaky roof.

• Upgrading old kitchens, bathrooms, or heating systems.

• Converting lofts, basements, or outbuildings.

• Making your home eco-friendly with solar panels or better insulation.

By improving your property, you’re not just creating your dream home—you’re often increasing its value too.

How do renovation mortgages differ from standard residential mortgages?

With a renovation mortgage, the money you borrow for home improvements is usually released in stages. This ensures the funds go toward the planned renovations, not something else. So, this means you’ll have to manage your cash flow carefully. 

Another key difference is how the amount you can borrow is calculated. For renovation mortgages, this figure is based on the estimated value after the work is completed rather than the actual purchase price.

So, for example, let’s say the property purchase price is £150,000 with renovation costs of £30,000 and after the work is complete the estimated value is £250,000. With a 25% deposit (£250,000 × 25% = £62,500), the amount you could borrow is £187,500.

Lenders may also have stricter requirements. For example, they might want to see a detailed renovation plan, including costs and timelines. They’ll also want to check the property has enough potential to justify the investment.

How do renovation mortgages work?

A renovation mortgage typically comes in two parts:

1. Buying the property: The first part of the loan helps you buy the house.

2. Funding the work: The second part covers renovation costs, which are released in instalments as the work progresses.

Lenders often inspect the property to ensure work is on track before releasing each payment. This keeps everything moving smoothly and ensures the project stays on budget.

Does the property have to be habitable?

Not necessarily! Some renovation mortgages are designed specifically for uninhabitable properties, such as derelict homes or those lacking key features like a working kitchen or bathroom. 

If the property isn’t habitable, you should expect a mortgage lender to ask for a higher deposit. You’ll also need to demonstrate that the renovations will make it liveable and increase its value. This could involve providing:

• A more detailed renovation plan.

• Professional cost estimates.

• Evidence that you’ve accounted for planning permissions if needed.

Specialist lenders understand the potential of uninhabitable properties and are more willing to help. 

An experienced broker with experience arranging these types of mortgages - like us! - can help you find the most suitable lender for your circumstances, saving you time and, potentially, some money, too. 

What are the typical lending criteria for a renovation mortgage?

Renovation mortgages are slightly more complex than standard home loans, so lenders have specific rules and requirements when assessing applications. These typically include:

• Deposit: Depending on the property's condition, you’ll need at least 15%-25%.

• Affordability: Lenders will assess all your income and outgoings to ensure you can afford the monthly mortgage repayments.

• Credit history: A good credit score is a big plus, but even with bad credit, there are specialist lenders who can help.

• Renovation plans: Detailed plans and quotes for the work are essential.

• Experience: Some lenders prefer applicants with renovation experience, particularly for larger projects.

How much deposit do you need for a renovation mortgage?

The deposit depends on the property’s condition and your lender’s requirements. For most renovation mortgages, you’ll need at least 15%-25% of the property’s purchase price. If the property isn’t habitable, expect to pay a higher deposit. Lenders see this as a bigger risk, so they’ll want you to have more equity in the project.

What are the alternatives?

Before you make a final decision to apply for a renovation mortgage, it’s worth considering all the alternatives, including: 

• Day 1 Remortgage. A day 1 remortgage is where someone remortgages their property shortly after buying it (usually within the first six months). If there’s enough equity available, you could release some of this money tied up in your new home to help pay for the renovations. If you’re renovating your current home, you could also look at remortgaging to release equity for home improvements.

• Second-charge mortgage**. If you want to purchase the property and do the renovations at a later date, you could consider getting a second-charge mortgage, which is a separate home loan but for the same property. 

• Home Improvement loan. If the amount you need for the renovation work is relatively small, you could apply for a home improvement loan rather than getting a renovation mortgage. Similar to a personal loan, this option would allow you to repay the debt over a shorter period (typically up to 5 years), meaning you should pay less interest overall. As with other personal loans, the amount you need for the renovations can be arranged and paid into your account within days. 

• Cash savings. If you have enough cash in your account to cover the cost of the renovations you want to make, this option avoids repaying any interest and charges that apply to a home loan. 

**This service is offered by referral to a third party.

What other factors should you consider when renovating a property?

Renovating isn’t just about having a vision—it’s about planning for the unexpected. Being prepared can save you from unnecessary stress later, so here are some things to keep in mind:

• Unexpected costs: Renovations can uncover hidden issues, so budget for at least 10% to 20% more than your initial estimate.

• Planning permissions: Check well in advance if you need planning permission or building regulations approval.

• Timeframe: Big projects take time—be realistic about how long it’ll take to complete.

• Insurance: Specialist renovation insurance is often required to cover the property while work is ongoing.