Borrowing money for a renovation when the building is in a very bad state of repair and needs extensive work is something of a specialist service, because most lenders will only lend money for homes that are fit to be lived in as they are.
However, if your home simply needs some work to improve it rather than turn it into a habitable building, then you’ll find lenders will be willing to provide you with up to 95% of its value.
Arrears and advanced mortgages
As with self-build projects, you have some options regarding how and when you receive your money. You can either choose an arrears mortgage or an advance mortgage, depending on what your lender offers, and whether you have funds already or need to borrow upfront to complete the work.
An arrears mortgage means you’ll get the money for the renovation either after the whole job is finished, or after each stage of a job is finished.
Unlike a self-build, these stages are less easily defined, because each project will need a different set of stages to fit in with what needs to be done, so this is something your lender will be able to advise you on in more detail.
You will still need to undergo inspections and your lender will probably retain some of the money until certain milestones have been reached and work approved. In the case of very extensive renovation work, you may need to complete the entire works to your lender’s satisfaction before you can receive any of the money.
This means you need to have sufficient money already available to carry out certain repairs, and wait until the lender releases the money once they’ve carried out their own processes.
An advanced mortgage means the money can be provided for the renovation work in advance, but this will be subject to the lender’s own terms and may be more expensive than an arrears arrangement.
There are specialist lenders who can fund renovation projects in advance, such as BuildStore, who offer niche finance for this kind of project.
Light renovation loans
You may be able to get what some lenders refer to as light refurbishment loans. These are a combination of arrears and advanced mortgages, in which the lender gives you a portion of the money you need up front, and then the rest once you’ve finished.
As before, you’ll need the building to undergo inspections beforehand and afterwards to comply with their procedures.
The amount you can borrow under these circumstances is dependent on the value of the building before the work is done, because it’s this starting point that a lender will use to calculate how much they’re willing to lend, which will be a portion of this total value.
Commercial / heavy renovation loans
For buildings that are in a worse state of repair and need to be totally overhauled, you can apply for a commercial or heavy renovation loan.
These kinds of loans are generally required whenever there is a need to get planning permission for the work you want to carry out, or you need to comply with building regulations.