For buyers of a property that needs work
Renovation Mortgage and Refurbishment Loans: How to Fund a Property That Needs Work
Sviatoslav JerdetchiiCEO & Founder of Craftex. Updated , 9 min read
The short answer
A renovation mortgage is a loan to buy or refinance a property and pay for the work on it. The right product depends on one question: is the property habitable today, and how heavy is the work?
- Habitable, light works: a standard mortgage, often with a retention until the valuer re-inspects.
- No usable kitchen or bathroom, or structural defects: most high-street lenders say no, so buyers use a refurbishment bridging loan, then refinance.
- You already own it: a further advance from your lender covers improvements, structural or not.
- Every lender asks for the same pack: a costed schedule of works, a programme and a clear exit.
A renovation mortgage is a loan that buys or refinances a property and pays for the work on it. In the UK that means one of four things: a standard mortgage with a retention, a further advance, a refurbishment bridging loan, or development finance.
The right one depends on the property. Is it habitable today? How heavy is the work? Lenders ask those two questions first, and the answers decide the product, the deposit and the paperwork.
This guide explains each option in plain terms, what makes a property unmortgageable and what every lender asks for. We write it as builders, not brokers.
Our luxury home renovation team produces the costed schedule of works and programme that lenders accept. If a lender has asked you for one, get a costed schedule of works and we will survey the property first.
This article is general information, not financial advice. Speak to a regulated mortgage adviser before you borrow.
What a renovation mortgage is, and what it is not
Nobody sells a product called a "renovation mortgage". The phrase is what buyers type when they want to borrow for a property and its works together.
What exists is a small set of loans, each built for a different starting point:
- Standard mortgage with a retention. The property is habitable. The valuer lists repairs and the lender holds back part of the loan until they are done.
- Further advance. You already own the home. Your lender adds to the mortgage for improvements, structural or not.
- Refurbishment bridging loan. The property is not habitable, or the work is heavy. A short-term loan funds purchase and works, then you refinance.
- Development finance. The scheme is a conversion, a rebuild or several units. The lender funds it in stages against a monitored programme.
Most mortgages to individuals on a home are regulated. In law, a regulated mortgage contract is credit to an individual, secured on land. At least 40% of that land must be used as or with a dwelling.
A bridging loan on your own home is regulated too. A loan on a property you will only let or sell usually is not.
What makes a property unmortgageable
A property is unmortgageable when a lender will not accept it as security on its normal terms. Each lender sets its own list, but the reasons repeat.
The kitchen point is the one that catches buyers. One major buy-to-let lender lists "properties with no internal bathroom, kitchen or W.C." as unacceptable, and says its list is not exhaustive.
A building society's own guidance names the essential amenities: a working kitchen, a functioning bathroom and connected utilities. Then it adds the important line. Each lender has its own view of what a working kitchen is.
Some lenders will still lend with a retention. The valuer names a sum, the lender holds it back, and releases it after a re-inspection. One lender states plainly that it holds a full retention until works are completed and does not consider partial ones.
Unmortgageable is temporary. Fit the kitchen, fix the structure, let the valuer re-inspect, and the same house is mortgageable again. That is the whole logic of refurbishment finance: borrow short to make the property lendable, then borrow long.
Four ways to fund a property that needs work
The table puts the four routes side by side. We have left out rates on purpose: they change monthly and depend on you, the property and the lender.
| Route | Property today | Typical work | Who it suits |
|---|---|---|---|
| Standard mortgage with retention | Habitable | Repairs the valuer lists | Owner-occupier buying a tired house |
| Further advance | You already own it | Kitchen, bathroom, extension, structural | Owner adding value to their home |
| Refurbishment bridging loan | Not habitable, or heavy work | Light or heavy refurbishment, then refinance | Buyer of an unmortgageable property, investor |
| Development finance | Vacant, derelict or to be converted | Conversion, rebuild, several units | Developer with a consented scheme |
A further advance is simpler than people expect. One major lender's intermediary criteria list home improvements in two groups. Non-structural covers a boiler, a new kitchen or bathroom, double glazing and central heating. Structural covers internal wall removal, extending, major roof works and a new staircase. Both are acceptable purposes.
The lender will still check affordability and may want a valuation.
A bridging loan is the route for an unmortgageable purchase. In the FCA Handbook a bridging loan is a regulated mortgage contract with a term of twelve months or less. The loan buys the property and funds the work.
When the property is habitable and revalued, a mortgage repays the bridge. That mortgage is the exit, and the lender will want to see it before it lends.
Development finance is a different product again, for schemes that are closer to construction than renovation. We cover it in the section on bigger schemes below.
Light and heavy refurbishment bridging loans
Bridging lenders split refurbishment work into two tiers, and the tier sets the price, the loan against value and the checks.
Light refurbishment is work that keeps the structure as it is. One lender's guide defines it as replacing or refurbishing kitchens and bathrooms, rewiring, decoration and internal reconfiguration. It states that light refurbishment does not include anything that needs planning permission or structural changes.
Heavy refurbishment is everything else: structural openings, extensions, loft and basement works, a change of use or a conversion into flats. Lenders treat it as closer to development. Expect a lower loan against the purchase price, a monitoring surveyor and funds released in stages against work done.
The timeline matters as much as the tier. In one lender's worked example, the buyer completes a light refurbishment within five months of purchase. She then borrows against the new value, with proof of the costs spent. The term on that product was twelve months.
A programme that runs past the term is not a plan, it is a default.
The value of the finished property drives everything. Lenders lend against what the property will be worth once the work is done, so your figures must be ones a valuer will accept. Our guide to why builders' quotes vary so much explains why a vague estimate will not do here.
What lenders ask for, and why a priced schedule of works speeds the loan
Every lender, from a building society to a bridging fund, asks for the same core pack. The names change; the contents do not.
- A schedule of works, priced. Room by room, trade by trade, with a total. Lenders prefer a contractor's price to a buyer's guess, because the contractor has to build to it.
- A programme. Start, finish and the stages between. It must sit inside the loan term with time to refinance.
- An exit. For a bridge, the mortgage or sale that repays it. The FCA rules say a borrower must show the lender a clearly understood and credible repayment strategy.
- Evidence as you go. Invoices, a re-inspection and photos. Retentions and staged funds are released against them.
This is where a builder changes the speed of the loan. A priced schedule of works from a contractor who has surveyed the property is a document a lender can rely on. A spreadsheet of guesses is not. The same document also sets the retention, the stage payments and the finish date the lender writes into its offer.
We produce that pack for buyers before they exchange. Our home renovation and refurbishment team surveys the property and prices the work line by line. The programme fixes the finish date in the contract. The rates behind those figures are in our guide to house renovation cost in London.
We also advise a contingency of 5% to 10% of the construction cost, depending on complexity. Lenders like to see it in the figures.
VAT and council tax on an empty property
Two tax rules change the numbers on a property that has stood empty, and both belong in the lender pack.
The rule is worth checking on any long-empty purchase. The detail is in our guide to the reduced VAT rate on empty homes.
Council tax works the other way. Since 1 April 2024 a council in England can charge a premium of up to 100% on a home empty for one year or more. It rises to up to 200% after five years and 300% after ten.
There is an exception for a dwelling undergoing major repairs or structural alterations, for up to 12 months. It cannot apply again unless the property is sold. Apply for it as soon as you complete.
I and my husband are very satisfied with Craftex's service and customer support. We bought a house in Hampstead and wanted to redesign and renovate it. On our initial free consultation with Sviat, we found out that we actually can do loft conversion and rear extension and add value to the property straight away. We worked with the Craftex design team to bring our vision to life and deliver planning approvals. At that time guys started stripping out to save time on the construction programme as we wanted to move in ASAP. We worked with very experienced project director Konstantin who was responsible for all aspects of project delivery from design to construction with a very good eye on details and customer care. We saved a lot of money by having professional advice from the start. Project management and quality at Craftex are at the highest level. Many thanks to Craftex Team.
Bigger schemes: when it is development finance, not a renovation mortgage
Some "properties to renovate" are development sites in disguise. A derelict house on a corner plot, a former shop with flats above, a building that could become four units.
A renovation mortgage or a light bridge will not fund those. Development finance does: the lender funds the purchase and then the build in stages, with a monitoring surveyor signing off each drawdown against the programme. The lender's appraisal looks at the gross development value, the build cost and the planning position, not just the price paid.
Signs that a property is really a development site:
- Planning potential for more units than it has today
- A vacant or derelict building with a corner plot, garden or airspace
- Commercial space that could change use to residential
- A build cost that is closer to new build than to refurbishment
Those are the schemes we take on as a development partner. Our development land and site sourcing service finds and tests sites and buildings for buyers. We work on schemes from £3M to £150M gross development value, with the appraisal proved before the offer.
For a house that could become flats, start with our guide to converting a house into flats in London.
How we help buyers who need the numbers before they exchange
Lenders move at the speed of the paperwork. Most delays on a renovation loan are not the lender; they are a buyer waiting for a builder to price the work.
We do it the other way round. Send us the address and the sales particulars. We survey the property, price the work on a written scope and give you a schedule of works and a programme that lenders accept.
If you go ahead, we build it to that figure, with extras priced and signed before they happen. We work on homes from £100,000 to £10M and above, across London.
Still looking for the right property to renovate? That guide covers where to find one and the checks to make before you offer. Then run through this list.
Has a lender asked you for the numbers? Get a costed schedule of works from us before you exchange, and borrow against figures that will hold.
Before you offer on a property that needs work
- Is there a working kitchen, bathroom and WC, by the lender's definition, not yours?
- Is the work light or heavy: does any of it need planning permission or structural changes?
- Has the property been empty for two years, so the 5% VAT rate may apply?
- Does the programme fit inside the loan term with time to refinance?
- What is the exit: a mortgage at the new value, or a sale?
- Has a contractor surveyed the property and priced the schedule of works?
- Is there a 5% to 10% contingency in the figures?
