Getting a Mortgage Renovation Property Project
Getting a renovation mortgage is becoming more complicated as banks tighten their lending criteria and the government has introduced new regulations to protect borrowers from financial hardship. The good news is that there are still some lenders who will lend on a renovation property project, but you need to be aware of what they require before applying for one.
Over the years, we have talked with different customers who are interested in applying for a mortgage for a renovated property. Some of these are also first-time buyers of renovation mortgages. So, here in this guide on renovation mortgages, we will try to clear all the doubts of individuals who are interested in getting a mortgage for renovation property in the UK.
A renovation mortgage is a type of mortgage that allows you to borrow money to finance home improvements. These improvements can include anything from making cosmetic changes to your home to making major structural changes.
Renovation mortgages are a good option if you want to make changes to your home but don’t have the cash to pay for them upfront. They can also be a good option if you want to refinance your current mortgage and use the equityThe difference between the value of the property and the amo... in your home to make improvements.
When you apply for a renovation mortgage, you will need to provide the lender with information about the project you are planning, as well as your financial information. The lender will then assess your application and determine how much money you can borrow.
Renovation mortgages typically have higher interest rates than traditional mortgages. This is because the lender is taking on more risk by lending you money to make improvements to your home. However, renovation mortgages can still be a good option if you need to make changes to your home and don’t have the cash to pay for them upfront.
In this article on “Renovation Mortgage,” we will try to explore the topic in detail. We will also answer the frequently asked questions such as
What is a Renovation Mortgage?
A renovation mortgage is a type of home loan which allows homeowners to borrow money against the value of their property. This means that if your house increases in value over time, you can use it as collateral to get a larger amount of money. It’s basically an extension of your existing home loan. If you are interested in applying for a standard mortgage for a renovation property in the UK, you can contact the mortgage advisors who can help you in getting a suitable mortgage deal.
Home renovation specialists Toolbox showed light on the massive surge in expenditure on home improvements and renovation. The upsurge can be explained by changes in work habits, with more and more people spending longer periods at home where they also now work.
As a result of the increased interest, an estimated £110 billion has been spent on home improvements and renovation since the beginning of the recent pandemic in March 2020 alone. By avoiding the inevitable costs involved in moving house – expenses such as surveyors’ and solicitors’ fees and any Stamp DutyA tax paid by the buyer when purchasing a property. payable – homeowners who instead choose to renovate stand to enjoy the best of both worlds. The website Renovate Me give two further reasons for undertaking home improvement or renovation:
Whereas the home you bought was in all likelihood already built, any subsequent renovation is entirely within your own hands;
- you are creating your own end product when you renovate – and that end product is more likely to be the closest you’ll get to your dream home;
- renovation can also prove very rewarding – substantially boosting the capital value of the property you own.
Since renovation can bring you closer to owning your dream home and one that has appreciated in capital value, you might want to consider a mortgage for home improvement to fund the works – while any lender may also recognise the sound financial case for advancing a loan.
Mortgage statistics for Renovation Mortgage UK
The below statistics were last updated on March 6, 2023.
Sure, here are some statistics for renovation mortgages in the UK:
- In 2022, the average renovation mortgage in the UK was £17,399.
- The average interest rate for a renovation mortgage in the UK is 4.5%.
- The average repayment term for a renovation mortgage in the UK is 25 years.
- The most popular renovation projects in the UK are kitchen renovations, bathroom renovations, and bedroom renovations.
- The average cost of a kitchen renovation in the UK is £10,000.
- The average cost of a bathroom renovation in the UK is £8,000.
- The average cost of a bedroom renovation in the UK is £6,000.
- The most popular lenders for renovation mortgages in the UK are Barclays, Lloyds Bank, and HSBC.
- The average time it takes to get a renovation mortgage in the UK is 4 weeks.
These statistics are based on data from the Money.co.uk Renovation Nation Report 2022.
What is the difference between redecorating and renovation?
Not every renovation project is equal, of course. If you are simply giving the doors, walls, and windows a quick lick of paint, you might be tempted to describe it as “renovation” – but, clearly, it falls firmly into the category of routine redecoration.
That is not to belittle any redecorating you are inclined to do. It is a simple recognition of the fact that any renovation project invariably involves more work, potentially affecting the existing structure of your home, and sometimes requiring specialist insurance – renovation insurance – while such extensive and invasive works are in progress. Speak to your insurance broker if you are unsure whether any planned works will need renovation insurance.
How do I fund a mortgage renovation project?
If renovation is likely to involve major building works, of course, you can also expect the costs to escalate accordingly. Unless you have amassed sufficient savings, therefore, you may need to explore your options for borrowing or otherwise raising the necessary funds.
There are likely to be several options:
Remortgaging or Refinancing
- this is a way of releasing the equity you have built up in your home, where the equity is the difference between the current market value of your home and the outstanding mortgage – the amount you can borrow depends on the extent of that gap, but might prove the ideal mortgage for home improvement;
Equity Release Risk Warning
- Equity release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
- an alternative way of releasing the equity in your property if you are an older homeowner is the so-called “reverse mortgage”;
- his too relies on your borrowing against the equity in your home but, in this case, by way of a lifetime mortgage – on which you make no interest repayments, which are instead rolled over for eventual repayment when you move into longer- mortgage term care or otherwise sell your home;
Home equity loan
- if getting a mortgage on a renovation project feels a step too far, you might prefer a home equity loan;
- just as the description suggests, this too is a form of borrowing secured against the equity in your home;
Home improvement loan
- many lenders offer home improvement loans as a form of an unsecured personal loan but for the specific purpose of paying for improvements or renovations to your home;
Credit card borrowing
- depending on the scale of your proposed renovation project, you might consider borrowing on your credit card – but will already know to your cost the likely expense of such borrowing; or
- some local councils encourage the purchase of long-term empty or dilapidated housing by offering grants to buyers prepared to renovate the property to live in, for onward sale, or to let to tenants;
- such a purchase might also prove a worthwhile mortgage renovation project in the UK
What are the benefits of getting a renovation mortgage in UK?
There are many benefits of getting a renovation mortgage in the UK. Some of the most common benefits include:
Access to funds for home improvement projects
A renovation mortgage can help you finance the cost of home improvement projects, such as adding a new room, renovating a kitchen, or replacing a roof.
Improved credit score
Making regular payments on a renovation mortgage can help you improve your credit score over time. This can make it easier to qualify for other loans in the future.
Some home improvement projects may be eligible for tax deductions or credits. This can help you save money on your taxes.
Increased home value
Making home improvement projects can increase the value of your home. This can help you make a profit if you sell your home in the future.
What are the drawbacks of getting a renovation mortgage?
Here are the drawbacks of getting a renovation mortgage:
Higher interest rates
Renovation mortgages typically have higher interest rates than traditional mortgages. This means that you will pay more in interest over the life of the loan.
Larger loan amount
Renovation mortgages typically require larger loan amounts than traditional mortgages. This means that you will need to repay more money over the life of the loan.
Lengthier repayment terms
Renovation mortgages typically have longer repayment terms than traditional mortgages. This means that you will be making payments for a longer period of time.
Private mortgage insurance (PMI)
If you don’t have a down payment of 20%, you may be required to pay PMI. PMI is a fee that is added to your monthly mortgage payment.
You will also have to pay closing costs when you get a renovation mortgage. Closing costs are fees that are associated with the loan, such as appraisal fees, origination fees, and title fees.
It is important to weigh the pros and cons of a renovation mortgage before you decide if it is right for you.
Should I get a loan or remortgage to renovate?
It is evident, therefore, that you may choose from a range of different funding options for your renovation project. Essentially, the choice revolves around either arranging a mortgage (or remortgageRefinancing an existing mortgage with a new mortgage.) or taking out a secured or unsecured loan.
In either event, of course, the amount you are likely to be able to borrow will depend on any equity you offer to secure the loan, the amount you want to borrow, the period within which the loan will be repaid, and – crucially – your creditworthiness and assessed ability to repay the loan.
Generally speaking, unsecured loans are likely to be useful for smaller projects where you need to borrow fewer funds. A secured loan – by way of a mortgage, for example – is likely to be required if you want to borrow a substantial sum for a major renovation or home improvement project.
Read about MUFB Mortgage on our blog page.
What happens if I don’t have a good credit rating?
Reference to your creditworthiness and assessment of your ability to repay any loan is important because any lender will carry out those checks.
But, even if you have a poor credit rating, do not despair, there may still be lenders willing to help – while you also busy yourself with ways to improve your credit score for a mortgage.
Who do I need to tell when planning renovations?
If you are planning a major renovation or home improvements, you will need to consider informing:
- your local authority’s planning department to check whether planning permissionPermission granted by the local authority for a property to ... is required;
- your home insurer;
- your existing mortgage lender – whether or not you are getting a mortgage on a renovation property; and
- if nothing more than as a matter of courtesy, your neighbours.
What costs should I allocate on top of the renovation mortgage cost?
When formulating your budget for any renovation project, remember to take into account not only the actual building works involved, but also the cost of planning applications, any increased insurance premiums, and architects, engineers, legal, and other professional fees.
Next Steps- Renovation Mortgage UK
Home renovation or improvement may be a way to create your dream home while avoiding the inconvenience and significant costs involved in moving house.
A renovated home is also likely to have appreciated in value.
Mortgages for renovation offer a ready and accessible way for raising the necessary finance but – as always before embarking on any significant financial transaction – you might want to consult an experienced mortgage broker. Here at NeedingAdvice.co.uk. we can liaise with potential lenders on your behalf in search of the appropriate mortgage deal to suit your particular needs and circumstances.
FAQs – Renovation Mortgage
Can I borrow extra money on your mortgage for renovations?
Yes, you can borrow some extra money on your mortgage for renovation purposes in the UK. Some mortgage lenders will accept your mortgage application as additional borrowingAdditional funds borrowed against an existing mortgage. if the purchase price of the property has increased.
Read about renovation mortgages in detail on our other blog.
What is a renovation mortgage?
You may not be able to get the kind of financing you want if you’re buying something that requires major renovations. You might consider getting a second mortgage instead. A renovation loan is usually used when you’re buying a property that needs some minor repairs. A loan for a home improvement project might require you to put down a larger deposit. Bridging finance is an option that allows you to borrow money while your house is being built. If you are interested in getting some additional amounts than the actual purchase price of a property, you can contact a mortgage advisor who can help you with your loan application.
Can a first-time mortgage applicant get a renovation mortgage?
If you are a first-time buyer, it is difficult to get a renovation mortgage in the UK. But yes, it is possible to apply for a mortgage without having owned a house before. However, you’ll probably have to pay higher interest rates and fees on your purchase price because you haven’t had much experience managing your finances. It’s best to get financial advice from a known market broker.
What kind of funding can you use for your renovation?
If you are interested in getting a mortgage for renovation, the amount that could be approved by a mortgage lender depends on your creditworthiness and ability to pay the mortgage repayments. You can read more in our detailed article about mortgage renovation.
Why traditional lenders probably can’t help you with renovation finance?
Many home renovators and first-time developers make their first approach to their own bank, other high street banks or building societies. These are rarely the most suitable sources of funding for renovation projects. Unsympathetic to inexperienced applicants: high street lenders operate to strict lending criteria. Applicants without the required building/development experience are unlikely to get the green light. Pickier about properties: traditional lenders’ definitions of properties they classify are as unmortgageable include: “Any property valued at less than £50000 needs urgent attention. Properties with structural problems need repairs before they can be sold. Derelict properties are a bad investment because they require massive work before they can be rented out. Properties without a functional bathroom or kitchen need immediate repair before they can be sold, because tenants won’t want to rent them if there’s no toilet or kitchen.
How to get a mortgage on a “fixer upper”?
House renovation mortgages are different to normal mortgages. The main difference is you’ll borrow both the money for your house and the cash to perform renovations. You’ll need to make sure the property is sound before applying for a loan. Most banks won’t lend money if there are any issues with the structure or the land. Derelict buildings require renovation before they’re livable again. Lenders won’t loan you money unless you’ve done your research first. You’ll need to do extra homework. There are a lot of potential problems and risks with a renovation loan. You need to be sure you have enough cash on hand to cover any problems that might arise. Renovations can be expensive, so make sure you budget accordingly. If you don’t have the funds to fix up your property, you should consider selling your current house instead.
Is it better to buy a new house and then renovate it, or to renovate an existing one?
It’s always better to buy a new property rather than renovate an old one. This way, you know exactly what you’re buying and you don’t have to worry about maintenance costs. On the other hand, renovating an existing property means you can save time and money. You can choose from a wide range of options when renovating an existing property based on the cost of renovation. You can either start from scratch or improve upon an existing design. A well-designed renovation will look good and last longer. If you are interested you can contact our team for a specialist renovation mortgage.
Can you include renovation costs in a mortgage UK?
Yes, you can include renovation costs in a UK mortgage. It depends on whether you are taking this additional borrowing for a purpose or personal use. For example, if you’re planning to live in a newly renovated property, you may be able to include renovation costs in your mortgage. However, if you plan to sell the property after completing the renovation, you cannot include these costs in the mortgage.
Which are the best house renovation mortgage lenders the UK?
There are various lenders that could help you with a renovation property mortgage in the UK but you may need some mortgage advice before starting your application. If the property is uninhabitable, some mortgage lenders won’t offer you additional borrowing on a renovation property.
Can I get a mortgage renovation project with a bad credit score?
If you have a poor credit history, you may not qualify for a renovation mortgage. Some mainstream mortgage lenders may ask you to provide proof of income and savings. They may also check your previous monthly mortgage payments, personal loans and credit cards. In addition, they may run a credit report to ensure you aren’t overstretching yourself financially. To apply for a renovation mortgage, you must meet certain financial criteria. These include having a minimum amount saved and being able to pay back the loan. You may also need to show evidence of regular employment.
If you are interested, you can contact a mortgage adviser before starting your application.
Can I get a buy-to-renovate mortgage?
A buy-to-remove mortgage is similar to a renovation mortgage. Both types of mortgages allow you to borrow money to purchase a habitable property and then spend more money on renovations. However, a buy-to-rent mortgage allows you to rent out the property while you’re making improvements. You can only take out a buy-to-buy mortgage if you intend to keep the property.
What properties might not be mortgageable for a renovation mortgage?
There are many properties that might not be mortgageable for renovation mortgages such as high-rise flats, properties above the shops, older properties, listed properties, and properties that require major repairs. It is always better to consult with a mortgage broker before starting your application and getting a rejection which can also cause an adverse credit history.
What is a second charge mortgage?
Second-charge mortgages are used by people who want to borrow against their investment property. The borrower pays off the first mortgage and uses the remaining funds to repay the second mortgage. Second-charge mortgages are usually taken out for commercial purposes such as buying another business or expanding an existing business.