What do lenders look for with a big home renovation?
A big home renovation can completely transform a property. Whether you’re looking to add an extension, convert a loft or completely restore a derelict property, it’s something that’s on a lot of our clients’ lists. But unless you have the cash ready to go (which most don’t), you’ll likely need a renovation mortgage to help fund your project.
In comparison to traditional mortgages, renovation mortgages work differently. Lenders will not just assess your own financial situation, but also things like the scope of the renovation, how it will impact the property value, and whether you have a solid plan to complete the work.
So what exactly do renovation mortgage lenders look for, and how can you improve your chances of getting approved? We’re breaking it all down in this guide to cover everything from lender requirements to common mistakes to avoid.
If you’re thinking about financing a major renovation and want expert guidance, then we’re here to help. You can visit our Renovation Mortgage page or book a free consultation with our team.
What is a Renovation Mortgage?
A Renovation Mortgage is a type of financing that’s specifically designed for properties that need improving or rebuilding. Similarly to how Self Build Mortgages work, they release the funds in stages as the project progresses rather than giving you the full amount upfront. This is to protect both you and the lender, and makes sure that the funds are being used correctly and that the project is progressing as planned.
A typical Renovation Mortgage structure works like this:
Initial funds received upfront to cover large initial expenses (e.g. foundation materials or potential extra land you need).
Stage payments released as you complete your different renovation milestones
Final payment processed once the project is completed, often followed by your mortgage converting to a standard repayment mortgage.
Often lenders view Renovation Mortgages as riskier than standard mortgages, which is why the application process tends to be more detailed and stricter, and why the payments are broken into these stages.
What do lenders look for in a Renovation Mortgage application?
Before approving your application, lenders will complete detailed checks to make sure you’ll be able to keep up with the repayments. These checks will often cover:
Your financial stability
The main thing lenders want to be sure about is your position to afford the loan and cover any unexpected costs that might occur. They’ll check:
How steady your income is. The more stable your employment is, the lower risk you are for borrowing.
Your credit score. As with any finance product, a stronger credit profile improves your chances of approval.
Any outstanding debts. This can impact your affordability rating.
Your deposit amount. Renovation Mortgages will require a higher deposit than a standard mortgage.
The condition of the property
After completing checks on yourself, lenders will also want to assess whether the property is suitable for a renovation. A project might be seen as a higher risk if the building is structurally unsound, uninhabitable, or in a conservation area.
Generally, if you’re living in the property currently and looking to expand onto land you already own, then there’s limited issues with this step. But if you’re in a more unique situation then you can talk through your plans with us and we can help to advise you.
Renovation plans and budget
You’ll need to have a well thought out plan, that’s financially viable, before applying for a Renovation Mortgage. This will need to include:
An outline of the work required for the renovation
Any applicable planning permissions and building regulation approvals
A breakdown of costs, including materials, labour costs and your contingency funds.
Official quotes from contractors and builders (not just estimates).
Underestimating your costs is one of the biggest red flags that lenders will look out for, so the more realistic you can make your plan and pricing the better. And as lenders also want to ensure it’s affordable, you should make sure you can financially cover any unexpected costs or delays.
How the Renovation will affect the property value
A final factor lenders will assess is whether the renovation will add to the value of the property. As this should be the main goal of the project. Lenders will typically approve projects that:
Increase the resale value of the home
Align with similar property values in the area
Improve energy efficiency or structural integrity
If your renovation isn’t going to significantly increase the value then you may be less likely to have your loan approved, or may need to provide further justification for the project.
How to improve your chances of getting approved for a renovation mortgage
Want to increase your likelihood of approval? Here’s some key steps we recommend you work through before applying.
1. Improve your credit score
A better credit score often means better mortgage rates. You can improve this by paying off existing debts, avoiding any new credit applications before applying, and correcting any credit report errors that might exist.
2. Be realistic with your budget
If you’re being too ambitious with your budget, then lenders will see this as having a higher risk of going into unaffordable territory. You should try to make sure that your budget:
Includes detailed breakdowns of your work, with official contractor quotes for this.
Accounts for any hidden costs, like planning fees and VAT that you might not initially expect.
Has at least a 10-15% contingency fund so you’re in a position to cover any additional expenses outside of your plan.
3. Work with a specialist Renovation Mortgage broker
Naturally, working with a specialist will help you to get dedicated advise. Not all lenders offer Renovation Mortgages, and not all mortgage providers have the experience to fully understand the nuances with renovations. So working with someone like us means you’ll be in a strong position to find the best options for you.
How much deposit do you need for a Renovation Mortgage?
Lenders usually ask for a higher deposit for Renovation Mortgages compared to the standard ones. But the exact amount they’d expect will depend on:
The property condition. If it’s currently lived in, you may be fine with a 10-15% deposit. But if it’s current unhabitable, expect to need at least a 25% deposit.
The lenders risk assessment. If it’s deemed as a riskier project, they may require a bigger deposit.
Your financial background. As with other financial products, if you’ve got a strong credit rating and good financial stability, you can secure lower deposit requirements.
What types of renovation projects will lenders approve?
Another thing to think about is the type of renovation you’re planning for, as not every renovation project is seen as mortgage-worthy. Lenders are more likely to approve loans for:
Structural renovations: Fixing foundations, replacing roofs, and upgrading heating/ plumbing systems.
Energy efficiency upgrades: Adding insulation, solar panels, or heat pumps.
Increasing living space: Extensions, loft conversions, basement renovations.
Restoring older properties: Updating historic homes to make them more liveable.
But lenders can be less keen to fund:
Overly ambitious projects: If you’re drastically changing the layout or adding features that don’t really add value.
Non-essential cosmetic upgrades: Painting and redecorating won’t typically qualify for major financing.
DIY heavy projects: If you’re relying too much on doing the work yourself rather than hiring professionals then this might seem riskier.
It’s important to note that many lenders also set time limits on how long you have to complete the renovation, and if you start by planning a renovation that seems unnecessarily long, this can also be a reason for rejecting the application. Typically, time limits for renovations range from 6 to 24 months depending on the scope of your project. And you should be aware that:
If you don’t finish within the timeframe set, your lender may impose a penalty or refuse to release any remaining funds.
The project timeline included in your application should allow for potential delays that do often occur with these types of projects.
Can you get a Renovation Mortgage if you’re self employed?
It’s true that self employed people do find it harder to secure a Renovation Mortgage, as their income can be seen as less stable. But it is definitely possible. To improve your approval chances, we recommend that self-employed applicants:
Provide at least 2 to 3 years of tax returns or income statements verified by an accountant.
Show strong savings and a clear budget for the renovation
Work with a specialist lender who understands both self employed finances and the specifics about renovation mortgages. (That’s us!).
Common mistakes to avoid
Many Renovation Mortgage applications get rejected for mistakes that were avoidable. Before you submit, check, and double check, you’ve:
Secured your planning permission
Haven’t overestimated the future value of the property (lenders will do their own valuation)
Chosen the right lender for you
Obtained any necessary professional surveys
Factored in a contingency fund
Are you ready to apply?
Think you’re now ready to apply to finance your big home renovation? Remember these key takeaways:
Lenders will assess your income, credit score, and any existing debts before approving you.
A detailed project plan, planning permissions, and contractor quotes are essential.
Expect stage payments rather than a lump sum, so make sure you have some cash flow to cover any costs in between these.
Working with a specialist renovation mortgage broker can improve your chances of securing the best deal for you.
If you’re thinking about applying for a renovation mortgage, we can guide you through the process and find the best financing options for you. You can visit our Renovation Mortgage page for more information, or book a free call to speak with our team today.