Refurbishment mortgages

Whether you’re a property investor or a homeowner looking to take on a fixer-upper, you may have come across the term’ refurbishment mortgage’. Refurbishment mortgages are a type of specialist loan designed to help borrowers finance both the purchase of a property and the cost of renovating it. This unique form of lending is often structured so that funds are released in stages, allowing for the sequential completion of refurbishment work.

Refurbishment mortgages offer a route to unlocking potential in properties that others might overlook due to their need for significant upgrades or renovations. However, these types of mortgages come with their own specific criteria, and understanding them is key to successful application and project completion.

Whether you’re exploring the possibility of applying for a refurbishment mortgage, considering the benefits and drawbacks, or seeking clarity on how it may impact property value and equity, this discussion should provide useful insights to help you navigate the process. From the prerequisites for first-time buyers to options for self-employed individuals, the specifics of heavy refurbishment, tax implications, alternative financing options, and much more, we aim to shed light on this specialist financing option.

What is a refurbishment mortgage?

A refurbishment mortgage, also known as a renovation mortgage, is a type of loan that is designed specifically for properties in need of refurbishment or renovation. These mortgages are typically used when the property is considered uninhabitable in its current state or requires significant work before it can be lived in or sold.

Refurbishment mortgages can cover both the property’s purchase price and the estimated renovations cost. The money for the renovation work is usually released in stages as the work progresses rather than as a lump sum. After each phase of the work is completed, a surveyor will typically visit the property to confirm that the work has been done to an acceptable standard before the next portion of the loan is released.

These types of loans are an attractive option for property developers, landlords, and those looking to purchase a ‘fixer-upper’ to live in themselves. However, refurbishment mortgages often come with higher interest rates compared to standard residential mortgages due to the increased risk associated with renovating a property.

How does a refurbishment mortgage work?

A refurbishment mortgage works by providing funds for both the purchase of a property and the necessary renovations. Here’s a step-by-step look at the process:

Application: First, you apply for the mortgage, outlining the purchase price of the property and the estimated cost of the refurbishments. You’ll need to provide detailed plans for the renovation, including a schedule of works and estimated costs. The lender will also evaluate your credit history, income, and other financial details to determine your eligibility.

Property valuation: The lender will commission a survey of the property. The surveyor will assess the current value of the property and also provide an estimate of its value after the proposed refurbishments are complete (known as the Gross Development Value or GDV). The amount the lender is willing to lend will typically be based on a percentage of the lower purchase price or the valuation and a percentage of the GDV.

Approval and initial payment: The lender will provide an initial sum to cover the property purchase if your application is approved. This is usually the same as a traditional mortgage, where the amount you receive is based on a percentage of the purchase price (Loan-To-Value or LTV ratio), and you’re expected to provide the remaining funds (deposit).

Fund release stages: The portion of the loan designated for refurbishments is typically held back and released in stages. After each stage of the work is completed, a surveyor will visit the property to confirm the work has been done to the necessary standard. If approved, the next stage of funds is then released. You’ll have to cover the upfront costs for each stage of work, and then you’ll be reimbursed when each stage is signed off. This is often referred to as ‘arrears stage payment’. However, some lenders offer ‘advance stage payment’, where you receive each tranche of funds at the start of each stage of work.

Completion: Once all the renovation work is completed and the final tranche of funds has been released, the refurbishment mortgage usually reverts to a standard residential or buy-to-let mortgage. At this point, you could also choose to remortgage with a different lender, especially if the property’s value has significantly increased following the refurbishments.

How much can I borrow?

The amount you can borrow with a refurbishment mortgage typically depends on several factors:
Property Value: Most lenders will base the initial loan for the property purchase on a percentage of the lower of the property’s purchase price or its current market value, often referred to as the loan-to-value ratio (LTV). The LTV is typically around 75%, but it can range from 60% to 90%, depending on the lender and the specifics of your situation.

Cost of renovations: The amount you can borrow for the renovation works will usually depend on the projected cost of these renovations and the expected value of the property once the renovations are completed, known as the Gross Development Value (GDV). Lenders typically allow borrowing up to a certain percentage of the GDV, often around 60-75%.

Income and credit history: Like any mortgage, your income, outgoings, and credit history will also be taken into account to ensure you can afford the repayments.

Experience: For larger renovation projects, lenders may consider your experience with similar projects. Experienced property developers may be able to borrow a higher percentage of the GDV compared to someone undertaking their first renovation project.

What deposit do you need for a refurbishment mortgage?

The deposit required for a refurbishment mortgage will depend on the loan-to-value (LTV) ratio set by the lender. The LTV is the ratio between the loan amount and the value of the property.
In the UK, the LTV for a refurbishment mortgage is typically around 75%, meaning you would need to provide a deposit equivalent to at least 25% of the property’s purchase price or its current market value, whichever is lower. However, this can vary between lenders, with some offering higher LTV ratios (meaning a smaller deposit is required) while others might require a lower LTV ratio (meaning a larger deposit).

Keep in mind that these figures can change depending on the specifics of the property and the refurbishment work that needs to be done. For example, if the property is currently uninhabitable, the lender might require a larger deposit.

It’s also important to note that the renovation funds are typically released in stages, and you may need to fund the initial stages of the work yourself before being reimbursed by the lender. So, you’ll also need to have enough cash on hand to cover these initial costs.

As always, it’s a good idea to speak with a mortgage broker or financial advisor to fully understand the deposit requirements for a refurbishment mortgage.

What documentation is required when applying for a refurbishment mortgage?

The documentation required for a refurbishment mortgage application will typically include the following, although requirements can vary between lenders:

Proof of identity and address: You’ll need standard identification documents like your passport or driving license, and proof of your current address, such as recent utility bills or bank statements.

Proof of income: This could be in the form of payslips and bank statements if you’re an employee or company accounts and tax returns if you’re self-employed. You might also need to provide proof of any other income you receive.

Credit history: The lender will typically carry out a credit check to assess your financial history.
Details of the Property: This should include the address, the purchase price, and a detailed description of the property.

Schedule of works: This is a detailed plan of the refurbishment work you intend to carry out, including timescales for each stage of the work.

Cost estimate: You’ll need to provide a detailed estimate of how much the refurbishment work is likely to cost. This might need to be broken down into individual stages corresponding to the schedule of work.

Post-renovation value estimate: This is an estimate of how much the property is likely to be worth after the refurbishment work is completed (known as the Gross Development Value or GDV). This might need to be provided by a qualified surveyor or another suitable professional.

Planning permission and building regulations: If the refurbishment work requires planning permission, you’ll need to provide evidence that this has been granted. You might also need to provide details of how the work will comply with building regulations.

Please note that this is a general guide, and the exact requirements can vary between different lenders and different types of refurbishment mortgages. It’s always a good idea to check with the lender or a mortgage broker to ensure you have all the necessary documentation before you apply.

What are the pros and cons of refurbishment mortgages?

Refurbishment mortgages can provide several benefits, but they also come with some potential drawbacks. Here’s a breakdown:

Pros of Refurbishment Mortgages:

Financing for renovations: Perhaps the most obvious advantage is that a refurbishment mortgage provides the funds needed to renovate a property, which might not be available through other means.

Potential for Increased property value: If the refurbishment work is done well, it can significantly increase the value of the property, potentially providing a good return on investment.

Access to more properties: With the funds to renovate, you can consider properties that might otherwise be off-limits due to their condition, expanding your options and potentially allowing you to buy in a more desirable location.

Convert to standard mortgage: Once the refurbishment work is complete, the loan usually reverts to a standard residential or buy-to-let mortgage with potentially lower interest rates.

Cons of Refurbishment Mortgages:

Higher Interest Rates: Refurbishment mortgages often come with higher interest rates than standard mortgages due to the increased risk associated with renovating a property.

Complex process: The process of obtaining a refurbishment mortgage can be more complex and time-consuming than getting a standard mortgage. You’ll need to provide a detailed schedule of works and cost estimates, and the funds are usually released in stages, requiring multiple inspections.

Upfront costs: You’ll typically need to fund the initial stages of the work yourself and then get reimbursed by the lender, so you’ll need to have enough cash on hand to cover these costs.

Risk of overruns: Renovation projects can often end up costing more and taking longer than originally planned, which can lead to financial difficulties.

Dependence on increasing property value: The benefit of increased property value after refurbishment is dependent on the property market. If property prices fall, you could end up owing more than the property is worth.

Remember, every situation is unique, and what might be a pro for one person could be a con for another. It’s always a good idea to speak with a financial advisor or mortgage broker to understand all the implications before deciding on a refurbishment mortgage.

How long does it typically take to get approved for a refurbishment mortgage?

The time it takes to get approved for a refurbishment mortgage can vary greatly depending on various factors, including the lender’s processing speed, the complexity of the refurbishment project, and how quickly you can provide the necessary documentation and information.
On average, it might take anywhere from a few weeks to a couple of months from the initial application to the final approval. Here’s a rough timeline:

Application submission: After you’ve prepared your application, which includes your financial information, details about the property, and your plans for refurbishment, you’ll submit it to the lender. This process could take a few days to a few weeks, depending on how quickly you can gather all the necessary information.

Property valuation and review of refurbishment plans: The lender will arrange for a valuation of the property and review your plans for refurbishment. This could take 1-2 weeks, although it could be longer if the refurbishment plans are complex.

Underwriting: Once the valuation is complete and the refurbishment plans have been reviewed, your application will go to the lender’s underwriting department. Here, they will review all the details of your application, check your credit history, and assess your ability to repay the loan. This part of the process can take 1-2 weeks on average.

Mortgage offer: If your application is approved by underwriting, the lender will issue a formal mortgage offer. This usually happens within a week or two after underwriting is complete.
So, all in all, you might expect the process to take around 4-8 weeks, although it could be quicker or take longer, depending on the specifics of your situation. Also, keep in mind that any delays in providing the necessary documents or information can extend this timeline.

What is the average interest rate?

Interest rates for refurbishment mortgages, sometimes also called renovation or bridging loans, can vary widely depending on the lender, the specifics of the property, the complexity of the refurbishment, your financial situation, and other factors.

Refurbishment mortgages generally have higher interest rates than traditional residential mortgages due to the additional risk involved. The rates can range from around 0.44% to 1.5% per month or more.

However, please note that these are generally short-term loans, often arranged on an interest-only basis, with the capital being repaid once the refurbishment is complete and the property is either sold or remortgaged.

It’s also important to note that these are just approximate figures, and the actual rates can vary. Additionally, other costs, such as arrangement fees, exit fees, valuation fees, and legal costs, can also add to the overall cost of the loan.

Can you apply for a refurbishment mortgage for any type of property?

Yes, in principle, you can apply for a refurbishment mortgage for various types of properties, including residential houses, flats, or even commercial properties. However, the eligibility and the exact terms will depend on the specifics of the property, the scale of the refurbishment, and the lender’s criteria.

Here are a few considerations:

Property condition: Refurbishment mortgages are designed for properties in need of renovation. However, if the property is in extremely poor condition, some lenders may not be willing to lend, or they may require a larger deposit.

Scale of refurbishment: Some lenders differentiate between ‘light refurbishment’ and ‘heavy refurbishment’, with different products and terms for each. Light refurbishment might include non-structural changes like redecorating and replacing kitchens or bathrooms, while heavy refurbishment could involve structural changes, extensions, or a complete overhaul of the property.

Property type: Some types of properties, such as listed buildings, high-rise flats, or non-standard construction properties, may be considered higher risk and could be more difficult to secure a refurbishment mortgage for.

End use: The intended use of the property after refurbishment could also affect your eligibility. For example, some lenders may not offer refurbishment mortgages for properties intended for commercial use or as a buy-to-let investment.

How do you qualify for a refurbishment mortgage?

To qualify for a refurbishment mortgage, you typically need to meet certain criteria related to your personal financial situation and the property you intend to refurbish. Here are some of the key requirements:

Credit history: As with any mortgage, you’ll need to have a good credit history to show lenders that you’re a reliable borrower. If you have a poor credit score, you may still be able to get a refurbishment mortgage, but it could be more challenging, and you might face higher interest rates.

Proof of income: You need to show that you have a steady income that’s sufficient to cover the mortgage repayments. The specifics of what’s required can vary between lenders.
Deposit: You’ll usually need a deposit of at least 25% of the property’s value, although this can vary. Some lenders may require a larger deposit if the property is in poor condition or if the refurbishment works are extensive.

Refurbishment plans: You’ll need to provide a detailed plan of the refurbishment work you intend to carry out, including an estimate of how much it’s likely to cost and how long it will take. The lender will want to see that the work is feasible and that it’s likely to add value to the property.

Experience: For larger renovation projects, some lenders may prefer borrowers with previous property renovation experience. However, this is not always a requirement, particularly for smaller, less complex projects.

Property valuation: A professional valuation will need to show that the purchase price is reasonable and that the expected value after renovation (the Gross Development Value or GDV) is in line with your projections.

Exit strategy: Lenders will want to see a clear exit strategy – that is, how you plan to repay the loan. This could be through selling the property, renting it out, or refinancing with a standard residential or buy-to-let mortgage.

What types of property refurbishments are not covered by this mortgage?

A refurbishment mortgage is intended to cover a wide range of improvements and renovations to a property, from minor updates to major structural changes. However, there may be certain types of work that some lenders are not willing to cover due to the level of risk involved. Here are some examples:

Illegal or Unpermitted Work: Any work that is carried out without the necessary planning permission or building regulations approval is not likely to be covered.

High-risk structural changes: Some lenders may be reluctant to lend for very major structural changes, such as adding multiple stories to a building or undertaking a basement conversion, especially if the borrower lacks significant prior experience in such projects.

Unusual or Non-standard construction: If the refurbishment involves using non-standard or unconventional construction methods or materials, some lenders may be hesitant to provide a loan.

Conversion to unusual property types: If the refurbishment involves converting the property into an unusual or niche property type that may be harder to sell or rent (for example, converting a residential house into a large number of small bedsits), some lenders may not be willing to lend.

Environmental risk: Projects that pose potential environmental risks, such as removing asbestos or other hazardous materials, may not be covered by some lenders.

Work on listed buildings or conservation areas: Refurbishing listed buildings or properties in conservation areas can be complicated due to strict regulations on what changes can be made, and some lenders may be reluctant to lend for such projects.

These are general guidelines, and the exact limitations can vary between different lenders and different refurbishment mortgage products. It’s always a good idea to discuss your plans with a mortgage broker or financial advisor and to check with potential lenders to understand what types of work they will and won’t cover.

Can you get a green refurbishment mortgage for energy-efficient home improvements?

Yes, there are green mortgages or energy-efficient mortgages available that are designed specifically to fund energy-efficient improvements to homes. These are a growing trend in the mortgage industry as more homeowners look to make their properties more sustainable and energy-efficient and as part of wider efforts to combat climate change.

Green refurbishment mortgages typically allow homeowners to borrow additional funds to carry out energy-efficient home improvements. This could include things like installing insulation, upgrading to energy-efficient windows, installing solar panels, or fitting a more efficient heating system.

Some lenders offer preferential terms for green mortgages, such as lower interest rates or higher loan-to-value ratios, on the basis that energy-efficient homes may have lower running costs and could be more desirable, and therefore potentially worth more, in the future.

However, it’s worth noting that the availability of these types of mortgages and the exact terms on offer can vary between different lenders, and they may also have specific eligibility criteria. For example, some green mortgages may only be available for properties that already meet certain energy efficiency standards, or the funds may only be available for specific types of improvements.

What happens if the refurbishment goes over budget with a refurbishment mortgage?

If your refurbishment project goes over budget, it could present several challenges. With a refurbishment mortgage, the amount you’re able to borrow is based on the initial cost estimates provided at the beginning of the project. If the actual costs end up being higher, you’ll need to cover the additional expenses yourself.

Here’s what you might do if you find yourself in this situation:

Use your own funds: If you have sufficient savings, you may choose to use them to cover the additional costs.

Negotiate with your contractor: If the cost overrun is due to issues with the contractor, you might be able to negotiate with them to lower the costs. However, this can be a difficult process, and it’s not always possible to reduce costs this way.

Adjust your plans: Depending on the nature of the project and the cause of the cost overrun, it might be possible to adjust your refurbishment plans to reduce costs. For example, you could choose less expensive materials or finishes or decide to postpone some parts of the project.

Apply for additional financing: In some cases, you might be able to apply for additional financing to cover the extra costs. This could be through an additional loan, a further advance from your existing lender, or by increasing the limit on a credit card. Be aware, though, that this could increase your overall financial risk and potentially lead to higher interest costs.

Sell or refinance the property: If you’re unable to cover the extra costs and the property is in a sellable condition, you might choose to sell the property or refinance it with a new mortgage to release some equity.

Remember, one of the key risks with any refurbishment project is that it could end up costing more than you initially planned. It’s always a good idea to include a contingency in your budget to cover unexpected costs and to closely monitor your spending throughout the project.
If you find yourself facing significant cost overruns, it may be a good idea to seek advice from a financial advisor or a specialist in property refurbishment to explore your options.

Light refurbishment mortgage

A light refurbishment mortgage is a type of loan designed for borrowers who intend to make relatively minor improvements to a property. The exact definition of what constitutes ‘light refurbishment’ can vary between different lenders, but it typically includes works that do not significantly alter the structure of the property and do not require planning permission.

Examples of light refurbishment could include:

• Redecorating and modernising the property.
• Replacing kitchens or bathrooms.
• Minor repairs such as replacing windows or fixing a roof.
• Installing central heating.
• Updating the electrical or plumbing systems.

One of the key features of a light refurbishment mortgage is that it allows you to potentially borrow more than you would be able to with a standard mortgage, based on the expected increase in the property’s value once the work is complete.

It’s worth noting that while light refurbishment mortgages can be a great way to finance minor improvements, they often come with higher interest rates than standard residential mortgages due to the additional risk involved. You should also be prepared for the lender to want to inspect the property both before and after the work is carried out.

Heavy refurbishment mortgage

A heavy refurbishment mortgage, also known as a structural refurbishment mortgage, is a type of specialist loan designed for property buyers who intend to make significant improvements to a property that will substantially increase its value.

The definition of what constitutes ‘heavy refurbishment’ can vary between lenders, but it usually refers to works that significantly alter the structure of the property or its use. These works typically require planning permission and the involvement of building control.

Examples of heavy refurbishment could include:

• Adding an extension to the property.
• Converting the property’s usage (like turning a residential home into a multi-unit rental property).
• Making significant structural changes, such as changing the layout of the property.
• Full-scale renovations or ‘gut rehabs’ where the property is stripped back to its structural shell and rebuilt.

A key feature of a heavy refurbishment mortgage is that it can potentially provide financing based on the expected post-renovation value of the property rather than just its current value. This can be helpful if the property is currently in poor condition or if the refurbishment work will significantly increase its value.

However, heavy refurbishment mortgages often come with higher interest rates than standard residential mortgages due to the additional risk involved. Lenders may also require more stringent checks, including detailed renovation plans, professional inspections, and potentially proof of the borrower’s experience with similar projects.

Also, funds for heavy refurbishment are typically released in stages, corresponding to different phases of the project, rather than all at once at the start. After each stage of work is completed and inspected, the next tranche of funds is released.

Is a refurbishment mortgage suitable for a buy-to-let property?

Yes, a refurbishment mortgage can certainly be a suitable option if you’re planning to buy a property to let and it needs renovation or improvement works. In fact, a buy-to-let refurbishment mortgage is a specific type of product offered by some lenders for this exact scenario.

Buy-to-let refurbishment mortgages are designed to help landlords increase the value of their rental properties through renovations or improvements. These might be minor works, such as redecorating or replacing a kitchen or bathroom (covered by a light refurbishment mortgage), or more significant structural changes, like an extension or conversion (covered by a heavy refurbishment mortgage).

These mortgages are usually interest-only and short-term, typically lasting between 6 and 18 months. At the end of the term, the idea is that the landlord either sells the property, ideally at a profit due to the increase in value from the renovations or refinances it with a standard buy-to-let mortgage, with the property now being worth more due to the works that have been carried out.

The criteria for a buy-to-let refurbishment mortgage can be quite strict, as the lender will need to assess not only the borrower’s financial circumstances but also the viability of the refurbishment project and the potential rental yield of the property once the works are complete. As such, you may find it beneficial to work with a mortgage broker or advisor who can guide you through the process.

As always, it’s essential to consider the potential risks as well as the potential benefits. Refurbishment projects can sometimes end up costing more or taking longer than expected, and there’s also the risk that the property might not achieve the rental income or sale price that you’re hoping for. Proper planning and budgeting, and possibly seeking advice from a property or financial advisor, can help mitigate these risks.

What insurance is required when taking a refurbishment mortgage?

When taking out a refurbishment mortgage, there are various types of insurance that you may need or want to consider:

Buildings insurance: This is usually a requirement of any mortgage and covers the cost of rebuilding or repairing your property’s structure if it’s damaged due to events like fire, storm, flood, or subsidence. For a refurbishment mortgage, you’ll need to make sure your policy covers any building works that are taking place. Not all standard buildings insurance policies will cover properties under refurbishment, especially for more substantial works, so you may need to look for a specialist policy or extension.

Contents insurance: This isn’t usually a requirement of the mortgage, but it’s often a good idea to have it. This covers the cost of replacing your possessions if they’re stolen or damaged.

Renovation insurance: This is a specialist type of insurance designed for properties undergoing refurbishment. It covers things like public liability (in case someone is injured on your property), the cost of repairing or redoing works if they’re damaged partway through, and sometimes the cost of alternative accommodation if you have to move out of the property while the works are being done.

Contractors’ insurance: If you’re hiring contractors to carry out the refurbishment works, you should check they have their own insurance to cover any damage they cause and any injuries to their workers. However, it’s still a good idea to have your own insurance as well, as there may be things that the contractors’ insurance doesn’t cover.

Life insurance: This isn’t specific to refurbishment mortgages, but if you’re taking out a mortgage, it’s often worth considering life insurance. This can pay out a lump sum if you die during the term of the policy, which can help your dependents to pay off the mortgage.

Income protection insurance: Again, this isn’t specific to refurbishment mortgages, but it’s something you might want to consider. This can cover a portion of your income if you’re unable to work due to illness or injury, which could help you to keep up with your mortgage payments.

Insurance requirements can vary between different lenders and depending on your personal circumstances, so it’s always a good idea to speak with a financial advisor or insurance broker to understand what cover you need. And remember, the cheapest policy isn’t always the best – it’s important to make sure you have the right level of cover for your needs.

How do refurbishment mortgages handle unexpected structural issues discovered during renovations?

Refurbishment mortgages are designed to fund planned renovation work, and their lending decisions are usually based on the initial scope of work and cost estimates provided at the beginning of the project. However, it is not uncommon for unexpected issues to come up during renovations, particularly with older properties or more significant renovation projects.

If you encounter unexpected structural issues during renovations that require additional work and expenses, the way it is handled can vary based on your situation and lender:

Personal funds: If you have sufficient personal savings, you might need to use these to cover the additional costs.

Contingency budget: It’s always wise to include a contingency in your initial budget to cover unexpected costs. Lenders will often want to see that you’ve planned for this in your refurbishment budget.

Negotiating with contractors: In some cases, you might be able to negotiate the additional costs with your contractor, particularly if the issue should have been foreseeable.

Additional lending: If the costs are substantial, you may need to approach your lender for further borrowing. Whether this is possible will depend on the lender’s policies, your financial situation, and the value of the property after the additional works have been completed. Be aware that this could result in higher interest costs.

Change in scope: Depending on the nature of the issue and the additional costs, it might be possible to adjust your refurbishment plans elsewhere to offset these costs.

When unexpected issues arise, it’s important to communicate this with your lender as soon as possible. They can advise on the best course of action and, if needed, discuss options for additional borrowing.

Significant renovations can come with risk, so it’s crucial to be prepared and have plans in place for unexpected issues. This includes having a comprehensive property survey carried out before you start, having a contingency budget, and considering insurance that covers unexpected renovation costs.

Can a refurbishment mortgage be used for converting a single dwelling into multiple units?

Yes, a refurbishment mortgage can be used to convert a single dwelling into multiple units, such as turning a house into multiple flats or a commercial building into residential units. This kind of work would typically fall under the category of a ‘heavy refurbishment mortgage’, given that it involves substantial structural changes and will likely require planning permission.

There are a few important considerations for this type of project:

Planning permission: Converting a single dwelling into multiple units will usually require planning permission. You should ensure you have this in place before starting the work, and you should be prepared to provide details to your lender.

Building regulations: You’ll also need to ensure the conversion meets all relevant building regulations. Again, your lender will likely want to see proof of this.

Valuation: The amount you can borrow will usually be based on the value of the property once the work is complete, as well as your own financial circumstances. You should therefore have a clear idea of the potential value of the converted units.

Exit strategy: Most heavy refurbishment mortgages are short-term loans, so you should have a clear exit strategy for when the term ends. This could involve selling the units or refinancing with a standard mortgage or a buy-to-let mortgage, depending on your plans for the property.

How do I apply for a refurbishment mortgage?

Applying for a refurbishment mortgage involves several steps and is somewhat more complex than applying for a standard residential mortgage due to the nature of the work being done. Here are the general steps:

Plan your refurbishment: Before you can apply, you’ll need to have a clear plan for the refurbishment you want to carry out. This should include detailed cost estimates and timescales. For larger projects, you’ll likely also need architectural plans and potentially planning permission.

Check your eligibility: Refurbishment mortgages often have strict eligibility criteria, which can include minimum income requirements, restrictions on the types of property and refurbishment that can be financed, and requirements for your experience with similar projects. It’s, therefore, a good idea to check these criteria before you apply.

Speak to a broker or advisor: Due to the complexity of refurbishment mortgages, it can be beneficial to speak to a mortgage broker or financial advisor who can help you understand the options available to you and find the most suitable product.

Prepare your documentation: You’ll need to provide a range of documentation when you apply, which can include proof of income, bank statements, details of your refurbishment plans, and proof of any planning permission required.

Application: The application process will involve a detailed assessment of your financial circumstances and your refurbishment plans. You’ll likely have to provide a lot more information than for a standard mortgage.

Property valuation: The lender will usually arrange for a valuation of the property, both in its current state and based on the expected value once the work is completed. For larger projects, they may also want to inspect the property during the works.

Mortgage offer: If your application is successful, the lender will issue a mortgage offer. This will detail the terms of the loan, including the amount, interest rate, and any conditions.

Legal work: As with any mortgage, there will be legal work to do, such as conveyancing and checking the property’s title. You’ll need a solicitor for this.

Completion: Once all the paperwork is done, the mortgage can be completed. The funds will usually be released in stages, in line with the progress of the refurbishment.

Refurbishment mortgage specialists

When it comes to refurbishment mortgages, working with specialists in the field can be very helpful due to the specific nature and complexity of these types of loans. Below are some examples of professionals who may be considered as refurbishment mortgage specialists:

Specialist lenders: Some mortgage lenders specialise in refurbishment mortgages and have a deep understanding of the unique needs and requirements of this type of loan. They’re equipped to handle the specific complexities and risks associated with lending for properties requiring significant renovation or conversion.

Mortgage brokers: Mortgage brokers who specialise in refurbishment or renovation finance can help borrowers navigate the process and find the right product for their needs. They have relationships with various lenders and understand the application process, eligibility criteria, and the particular nuances of these types of loans.

Financial advisors: Some financial advisors specialise in property finance and can provide advice on refurbishment mortgages. They can help borrowers understand the financial implications of this type of loan, including costs, interest rates, and potential risks.

Solicitors: Solicitors who specialise in property law and have experience with refurbishment properties can help with the legal aspects of securing a refurbishment mortgage, such as dealing with planning permissions and building regulations and handling the conveyancing process.

Please note that the names of specific lenders, brokers, or solicitors that specialise in refurbishment mortgages have not been provided, as this can change over time and depend on your specific circumstances. It’s always a good idea to do your own research or work with a professional advisor to find the right specialists for your needs.