Renovation Mortgage First-Time Buyer
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Renovation Mortgage First-Time Buyer
What is a renovation mortgage? Is this a specific product, and can a first-time buyer get one?
A renovation mortgage lets you buy a property and fund renovation works as part of your mortgage borrowing. Instead of lending purely on the property’s current condition, the lender can consider the property’s value after the renovations are completed.
It’s most commonly used for ‘fixer-upper’ properties that need modernisation, or are unmortgageable in their current form. Lenders often will release renovation funds in stages once the work is completed as expected.
First-time buyers can get renovation mortgages, but you’re seen as a higher risk – not only for the renovation side of things, but also because you have no previous mortgage history. That can make it a little trickier.
What eligibility criteria do I need to meet to renovate a property as a first-time buyer?
Exact criteria will vary lender by lender, but typically you’ll need to achieve a good credit history, stable, provable income, and strong affordability. You also need to prepare for the costs to overrun, and factor that in.
The property has got to be structurally sound. Works are usually limited to kitchens, bathrooms, rewiring, plumbing, windows, heating and cosmetic upgrades. For more in-depth
structural changes, you would need more niche, specialist finance.
There needs to be a detailed renovation plan, with costings and quotes from builders, and a reasonable timeline to achieve the works.
Do you need a deposit for a renovation mortgage?
Typically, you need 15% to 25% and higher deposits may be required for more extensive works. This is a lot compared to the average mortgage for a first-time buyer. You need access to more funds than if you were buying just a property that’s ready to move into.
How do you fund a renovation? What costs are involved?
Common funding methods would be a renovation mortgage, personal savings, additional borrowing, and at a later stage, remortgaging to raise the money. We see that quite often, but that’s slightly different and more on the standard mortgage side of things.
If you were to buy a property and want to convert the loft at a later stage, for example, you may be able to just purchase it now and in 12 months’ time remortgage and raise some money. That’s a good way of doing it.
You can also consider specialist finance, like bridging, which is short-term, high-risk finance to cover the gap and get the property into a mortgageable state.
Typical renovation costs include building labour and materials, architect and surveyor fees, planning permission, building control and structural engineer reports. It’s always good to factor in a contingency fund as well of about 10% to 20%.
Can I use some of my mortgage for renovations?
Yes, you can borrow enough to set aside a pot for renovation. It depends on the lender and the mortgage type. You could have funds added upfront to your mortgage, which releases the money straight away.
Otherwise, funds are released in stages after inspection. You may be able to raise small lump sums of money to get to the next stage, but a lender may not feel comfortable releasing all of the money all at once.
Another route is for the renovation to be funded after purchase via a remortgage, as I mentioned before. You would buy the property on a standard mortgage and then use the equity in your property later to carry out home improvements.
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Can I get a Buy to Let mortgage on a property that needs renovating as a first-time buyer?
It’s difficult, but not necessarily impossible. Most Buy to Let lenders don’t accept first-time buyers and instead want someone who has previously owned a property and has landlord experience.
Most also require the property to be immediately habitable and will assess it at its current rental value. If the property needs work and is not in a great state, it can limit your borrowing options and may not make it viable.
Renovation-heavy properties usually need more cash. Bridging finance can get it to a mortgageable state so that there’s a favourable rental valuation – and also give you home ownership experience, making it easier to lend you a standard Buy to Let mortgage.
How do I apply for a mortgage to renovate a property as a first-time buyer? What’s the process?
Speak to a mortgage broker early on to get a full snapshot of your options, assess the affordability and confirm what deposit you’re likely to need. We will choose a suitable lender and product for you, and submit the application once you’ve found a suitable property.
You would submit your renovation plans and quotes to the lender, and they would then confirm both the current valuation and the proposed end valuation. Once the lender is happy, your mortgage offer will be issued, and you can complete it once the solicitor’s side of the process is done.
On completion, your renovation funds will be released, and you’ll own the property. That’s when you can begin doing the work. If you have a mortgage product that releases the money in stages, you will have inspections at each stage.
It’s a mortgage that will take a little longer than a standard one, and you will usually need more documents to support the application.
Are there any alternatives to a renovation mortgage?
Yes. Depending on the scale of the work, you could take a standard mortgage and keep back savings for the work. If you had access to £100,000 for a purchase, for example, and you could put down a 5% deposit (£20,000), you would then have £80,000 to do the work.
Bridging finance is another option, as short-term finance with higher risk and costs. You don’t generally need to make monthly payments, as these are rolled up into the financing. That allows you to focus on doing the work if you think it can be done in a short period of time. You then get out of that finance by remortgaging onto a standard residential mortgage.
You could look at a personal loan if it’s a small project. Or you could buy first and renovate later via remortgaging, as I explained with the loft conversion example.
You might have access to family help or gifted funds. And for more complex, bigger projects, self-build or custom-build mortgages could be an option as well.
How can a mortgage broker help here? Any final thoughts?
A mortgage broker plays a crucial role when buying and renovating your first home – just by identifying the lenders that are happy to work with first-time buyers, and matching the scale of your renovation to suitable mortgage products.
We navigate a wide array of lenders so you can work with niche lenders as needed. We help structure how the renovation funds are released, and reduce the risk of your application being declined – by placing you with the right lender first.
A broker can also coordinate with surveyors and solicitors throughout the process, making a complex transaction more manageable. This is one of the areas where a broker adds real value – when it’s anything more complex than the usual transaction. Getting expert advice and experience behind you makes the process so much easier.
Key Takeaways:
- First-time buyers are considered higher risk for a renovation mortgage due to a lack of mortgage history and the renovation work, often requiring higher deposits (typically 15% to 25%).
- A good credit history and stable income is required. Renovation works are generally limited to non-structural upgrades (e.g., kitchens, bathrooms, rewiring), and a detailed plan with quotes and a timeline is essential.
- Funding alternatives to a renovation mortgage include personal savings, personal loans for small projects, bridging finance, or buying with a standard mortgage first and remortgaging later for home improvements.
- It is difficult for first-time buyers to get a Buy to Let mortgage on a property needing renovation; most lenders require prior property ownership and landlord experience, and the property must usually be immediately habitable.
- A mortgage broker is crucial for first-time buyers in this process, helping to identify suitable lenders, and coordinate with surveyors and solicitors to manage the complex transaction.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
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What you need to know…
The actual amount you can borrow will depend on your credit commitments, your regular monthly outgoings and how each lender assesses your income.
Lender’s affordability checks can differ meaning that the amount you can borrow may change from lender to lender. That’s where the expertise of our personal advisers comes in and where our independent status benefits you.
The minimum deposit required is 5% of the property purchase price. Most lenders will allow the deposit to come from a gift and some lenders will even consider this being raised via a personal loan. There are government incentives to help boost your savings if you are a first time buyer. Depending on your circumstance you may either need to have a larger deposit or will perhaps want to put a larger deposit down, due to preferable interest rates.
Because we are independent mortgage brokers we will be able to secure you the best deal for your circumstance.
An Agreement in Principle, also known as a ‘Decision in Principle’ will be provided after affordability and credit checks have been approved. An Agreement in Principle is extremely useful to increase your confidence when viewing and offering on properties. Estate Agents will typically want to see an Agreement in Principle before presenting your offer to the seller. Our personal advisers can help you with this.
It’s a requirement of your mortgage to have buildings insurance. This covers the bricks and mortar of the property.
It’s also a good idea to take advice from your personal adviser on protecting you and your loved ones if something bad happens. For example: Life Cover, Critical Illness Cover and Income Protection.
Being accepted for a mortgage does depend on your circumstances. We are experts with all types of mortgages…. We specialise in obtaining mortgages for the self-employed, contractors, construction industry scheme (CIS) workers and those with historic adverse credit (as well as employed people of course). In all these situations we can frequently secure high street deals. Being independent and experts is a real benefit in these circumstances.
Your monthly payments will vary depending to your chosen mortgage term, choice of mortgage product, how much deposit you have and repayment type. It is best to chat with a personal independent adviser to find out exactly what interest rate and term you can secure to give an accurate monthly payment.
Most of the first time buyers we have helped secure a mortgage are paying less on their mortgage than they used to pay on rent. This does, however, depend on circumstances. The mortgage term chosen is a major factor which can be dictated by your age and intended retirement age. Of course, it is also worth noting you are paying back the mortgage and once it is repaid you won’t have any rent to pay.
There are costs associated with purchasing your first home. You will need to pay legal fees and other potential costs include a survey fee, stamp duty (which is a property land tax) and administration fees. There are First Time Buyer government incentives on savings and stamp duty that can help you with raising the monies for a deposit, costs and reducing stamp duty. Our personal advisers can give guidance within a free consultation.