How To Get A House Renovation Mortgage

House Renovation Mortgage

August 2022 

How To Get A House Renovation Mortgage in 2022

If you’ve bought a ‘fixer-upper property’ and are planning to renovate your home, you may be considering taking out a house renovation loan. Once you’ve got one foot on the property ladder, a house renovation loan can provide the funds you need to make your renovation dreams for your own home a reality. 

But when you’re thinking of turning your home into a building site, you’ll likely have some questions.

What is a house renovation loan? How does it work? And what kind of properties qualify? This article will tell you everything you ought to know about this type of financing.

Topics that you will find covered on this page

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What are the options for funding a renovation?

A home renovation can be expensive: from project management costs to professional fees, you’ll likely need some long or short-term finance to aid your project. 

There are a number of ways to fund your home renovation, including loans, credit cards, and home equity lines of credit. However, one of the most popular options is taking out a house renovation loan.

What is a renovation mortgage?

House renovation mortgages are similar to conventional mortgages, except they are a loan that is specifically designed to finance home renovations. A few of the benefits of this type of loan include low-interest rates, flexible repayment terms, and the ability to borrow a relatively large amount of money.

It’s important to compare different renovation mortgage lenders before you choose one. Make sure to look at interest rates, fees, lender criteria and repayment terms. This will help you find the best deal possible on your house renovation loan. 

You might find that specialist lenders, rather than traditional lenders (such as high street lenders or mortgage brokers), will be able to provide you with a more appropriate form of property finance.  

Remember, the information in this article does not officially constitute financial advice, and therefore important to seek advice (such as that from an online mortgage advisor, exclusive mortgage expert or mortgage broker regulated by the Financial Conduct Authority and Prudential Regulation Authority) before you take out a refurbishment loan.

What are the types of renovation mortgages available?

There are two main types of house renovation mortgages: home equity loans and personal loans.

Home equity loans

These loans are a type of second mortgage. This means that they are secured against your home, which gives the mortgage lender the right to repossess your home in the event that you default on the loan. However, because they are secured against your home, they usually come with lower interest rates than unsecured personal loans.

Personal loans

These are not secured against your home, which means that the lender cannot repossess your home if you default on the loan. However, because they are not secured against your property, these usually have higher interest rates than home equity loans.

Are there different types of mortgages for different projects?

In short, yes. Alongside the choice between a home equity or personal loan, lenders generally categorise a home improvement loan as one of the following:

Construction to permanent mortgages

This type of loan combines a construction loan with a traditional mortgage. Construction loans are utilised to finance the cost of building or renovating a home, while traditional mortgages are utilised to finance the purchase of an existing home.

Construction only mortgage

A construction-only mortgage gives you the cash to complete your renovation project (or, in this case, renovation), and when you move in, you’re given a second mortgage to repay the original debt. This type of loan is conventionally used by borrowers who are not able to obtain traditional financing.

Conventional mortgage plus additional finance

If you have already taken out a mortgage on your home, you can apply for a conventional mortgage plus additional finance to cover the renovation costs. The additional finance is usually in the form of a home equity loan or line of credit.

get house renovation mortgage

How does a renovation loan work?

During the credit crunch, there were few mortgage providers lending money for home renovations, except for specialist lenders and private banks. However, now there are a lot of options for securing a property renovation mortgage, depending on the borrower’s criteria.

Once you’ve found a lender that you’re comfortable with, it’s time to fill out a mortgage application. Be sure to have all of your financial documentation (and proof of your approximate annual income) in order before you begin the application process.

Once you’ve been approved for a home renovation mortgage, the lender will release the funds to you in one lump sum (it is unlikely to be a stage payment mortgage). You can then use these funds to pay for renovation projects.

As with any other loan, you will be required to make repayments on your home renovation loan – and you’re unlikely to get an interest-only mortgage. The repayment terms will vary depending on the lender, but you can typically expect to make repayments over a period of 2-5 years.

"A home renovation can be expensive: from project management costs to professional fees, you'll likely need some long or short-term finance to aid your project. "

What kind of properties qualify for a renovation mortgage?

There are a number of criteria you must meet for your property to qualify for a home renovation loan.

The property must be your primary residence

In order to qualify for a home renovation loan, the residential property must be your primary place of residence. This means that you must live in the property for at least six months of the year.

The property must be owner-occupied

The property must also be owner-occupied, which means that it cannot be an investment or rental property.

The value of the property must justify the loan amount

In order for a lender to approve your loan, they will need to ensure that the value of the property justifies the loan amount. This means that the appraised value of the property must be greater than or equal to the loan amount.

property renovation mortgage

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Can you get a renovation mortgage for an uninhabitable property?

Most high street banks will not provide a home renovation loan for an uninhabitable property. 

However, in some circumstances, you will still be able to get a renovation loan. You will likely need to have a detailed plan (and perhaps also already have planning permission) for the renovation that will transform it into a habitable property in order to qualify for the loan.

In some cases, the lender will withhold some funds, known as retention, until essential repairs are complete. 

It’s sensible to consult someone who is familiar with specialist finance and can provide mortgage advice for your specific situation.

Can I get a renovation mortgage for a property I already own?

Yes, you can get a renovation loan for a property you already own. However, you will need to have equity in the property in order to qualify for the loan.

What are the interest rates on house renovation mortgages?

The interest rates for a home renovation loan will vary depending on the lender. However, you can typically expect to pay a higher rate of interest than you would on a traditional mortgage.

What are the fees associated with house renovation mortgages?

There are a number of fees associated with house renovation mortgages. These include application fees, appraisal fees, and origination fees. You will also be responsible for paying closing costs.

‍ renovation mortgage lenders

Is a deposit required for a renovation mortgage?

Yes, a deposit is typically required for a home renovation loan. The deposit amount will vary depending on the lender, but you can expect to pay at least 5% of the loan amount.

How much can I borrow on a renovation mortgage?

The maximum loan amount for a home renovation loan will vary depending on the lender, the property purchase price and the current value of the existing property. However, you can typically expect to borrow up to 85% of the value of the property.

I’m a first-time buyer. Will I be approved for a renovation mortgage?

Yes, you can be approved for a home renovation loan as a first-time buyer. However, the process may be more complicated and protracted than it would be for someone with experience in the housing market.

It’s important to remember that each lender has its own criteria for approving loans. As such, you might need to speak to a mortgage specialist in order to determine if you qualify for a house renovation loan.

If I have bad credit, will I be able to take out a renovation mortgage?

Bad credit can make it difficult to qualify for a loan for a renovation project, but it is not impossible. There are a number of ‘bad credit’ mortgage lenders who offer house renovation loans. 

However, you can expect to pay a higher interest rate than you would with a traditional lender.

home renovation mortgag

What is a buy to renovate mortgage?

A buy to renovate mortgage is a loan that is specifically designed for those looking to purchase a property in need of renovation. The loan provides the funds necessary to purchase the property as well as finance the cost of the renovations.

The criteria for these loans will vary depending on the lender. However, you can typically expect to need a deposit of at least 10% of the purchase price. You will also need to have a good credit history in order to qualify.

What are the benefits of using a renovation loan?

It might seem as if there are a plenitude of complicated factors to consider when thinking about taking out a renovation loan. However, there are a number of key benefits that you should keep in mind.

Higher loan to value ratio

One of the main benefits of taking out a renovation loan is that you can typically borrow a higher percentage of the property value. This means that you can finance a larger portion of the project costs.

Flexible repayment terms

Another key benefit is that most renovation loans offer flexible repayment terms. This means that you can tailor your repayments to suit your budget and financial situation.

Fixed interest rates

Another big advantage is that many renovation loans come with fixed interest rates. This means that your interest payments will remain the same for the duration of the loan, even if interest rates rise.

This can help to make budgeting for your renovation easier as you know exactly how much you need to pay each month.

Lower monthly payments

If you plump for a longer repayment term, you can also benefit from lower monthly repayments on your mortgage. This will not save money but might help to make your renovation more affordable.

mortgage for renovation property

Is there a better way to finance a renovation property?

There are a number of different ways to finance a renovation property. The best way to finance a renovation will depend on your personal circumstances.

For example, if you have a good credit rating, you may be able to take out a standard mortgage. However, if you have bad credit, you may need to look at alternative options such as bridging finance.

Would a bridging loan be a better alternative?

A bridging loan is a specific type of short-term loan that can be used to fund a house renovation. Bridging loans are typically used when traditional forms of finance are not an option.

One of the key benefits of bridging finance is that it is very flexible. This means that you can tailor the loan to suit your needs and budget.

For example, you can choose to make interest-only payments for the first few months before switching to capital repayments. This can help to keep the repayments on your mortgage low while you are renovating your property.

You can also generally choose the length of the loan term to suit your needs. For example, if you expect the renovation to take six months, you could take out a six-month bridging loan.

However, there remains the risk that you could end up paying more interest than you would with a traditional mortgage. This is because bridging loans typically have higher interest rates than standard mortgages.

renovation property mortgage

How do I get the best renovation mortgage deal?

The best way to get a good deal on a renovation mortgage is to shop around and compare different deals. There are a number of comparison websites available in order to help you to do this.

When comparing deals, it’s important to look at more than just the interest rate. You should also consider the fees and charges associated with the loan, as well as the repayment terms.

Remember, the cheapest loan might not always be the best option. It’s important to make sure that you are getting a loan that suits your needs and budget.

So, is it a good idea to take out a house renovation mortgage?

Taking out a home renovation loan can be a great way to finance your property renovation. There are several significant advantages to taking a renovation loan, such as the ability to borrow a larger proportion of the property value, flexible repayment schedules and fixed interest rates. 

In general, it’s easy to take out this kind of specialist mortgage online or in person.

However, it is important to bear in mind that there are also some risks associated with taking out a renovation loan, such as the possibility of paying more interest than you would with a traditional mortgage.

Remember, before taking out a secured loan, that most renovation projects will require planning permission and building regulations. 

Ultimately, the best way to finance a renovation will depend on your individual circumstances, and so with all forms of renovation finance, it is sensible to seek mortgage advice (such as that from an online mortgage advisor or mortgage brokers regulated by the financial conduct authority) before investing.

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Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

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Frequently Asked Questions

What is a renovation mortgage?

House renovation mortgages are similar to conventional mortgages, except they are a loan that is specifically designed to finance home renovations. A few of the benefits of this type of loan include low-interest rates, flexible repayment terms, and the ability to borrow a relatively large amount of money.

Can I get a renovation mortgage for a property I already own?

Yes, you can get a renovation loan for a property you already own. However, you will need to have equity in the property in order to qualify for the loan.

What are the fees associated with house renovation mortgages?

There are a number of fees associated with house renovation mortgages. These include application fees, appraisal fees, and origination fees. You will also be responsible for paying closing costs.

How much can I borrow on a renovation mortgage?

The maximum loan amount for a home renovation loan will vary depending on the lender, the property purchase price and the current value of the existing property. However, you can typically expect to borrow up to 85% of the value of the property.

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