Renovation Mortgage First Time Buyer

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Renovation Mortgage First Time Buyer

Steven Hargreaves talks about how the mortgage process works if you are a First Time Buyer looking to renovate a property.

What is a renovation mortgage? Can First Time Buyers get a renovation mortgage?

This is something a lot of First Time Buyers look at, where they see a property that needs a bit of work on it. It might need a new kitchen, bathroom, or just cosmetic updating.

I get quite a lot of calls for mortgages for renovation, and while there isn’t such a thing as a renovation mortgage, there are ways to do this.

If you had a £20,000 deposit and the house was £100,000, just for nice easy figures, instead of putting £20,000 down and getting an £80,000 mortgage, you could put in the absolute minimum deposit – which in most cases would be 5%.

You do tend to find that the interest rate is a little bit more expensive for a 95% mortgage rather than 80%. But in that example, you would then have £15,000 to spend on the property.

So it’s not specifically a renovation mortgage, it’s a way to make sure you have the money to spend on renovating the house – to put that new kitchen or bathroom in or the cosmetic upgrade.

What eligibility criteria do I need to meet to renovate a property as a First Time Buyer?

It’s the same eligibility as for getting a mortgage. In that example I gave, you’re looking at the eligibility for a 95% mortgage – a higher Loan to Value mortgage than the 80% mortgage.
As long as your income covers the 95%, you could then keep that deposit money back to spend on the house.

Do you need a deposit for a renovation mortgage?

Yes, but the main idea here is to get together as much money as possible and keep most of it back for the renovations. You would put down the absolute minimum of 5% deposit, as per that example.

There’s even one building society that’s offering a 1% deposit as of now, in January 2025. These things obviously change on a regular basis.

How do you fund a renovation? What costs are involved?

What I would say is make sure you get some prices on everything. If you’ve got that £15,000 but the new kitchen is £30,000, you’re going to have to find the money for that somehow.

Going down the route of second charge loans and personal loans can be quite expensive, because you’re paying the money back over a much shorter term. So get the quotations in, so you know that you can afford to fund those renovations from your savings.

Also, whatever you think the renovations are going to cost, add another 20%. I’ve renovated a number of properties over the years and built extensions… and things always cost a good 15% to 20% more than you imagine.

Can I use some of my mortgage for renovations?

It’s not the mortgage you’re using, it’s your savings. You’re using your money to fund the cost of the renovations.

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Can I get a Buy to Let mortgage on a property that needs renovating as a First Time Buyer?

Yes. It’s exactly the same scenario, but you’re going to have to put down at least a 20% deposit, and 25% for better interest rates. So again, using that £100,000 example, you would have to put down a minimum of £20,000 or £25,000 to purchase that property in the first place, as that’s what’s required for a Buy to Let mortgage.

How do I apply for a mortgage to renovate a property as a First Time Buyer? What’s the process?
You would still need your pay slips and bank statements, and we would talk about the different rates. There’s all sorts of different ways of doing it.

I’ve got a client doing some renovations who is hoping to have them done within about 12 months. It’s quite a big project. They’ve taken out a tracker rate mortgage which means there are no early repayment charges.

They’re hoping to buy this property for £275,000, putting the minimum deposit down. They’re taking the maximum mortgage and keeping as much money as possible back for the renovations, which will cost between £70,000 and £90,000.

They hope that in 12 months’ time that property is going to be worth £400,000. At that stage we will remortgage – because that tracker rate mortgage doesn’t have any early repayment charges. I’ll re-mortgage them to a fixed rate once the property is finished and we’ve got a much higher valuation.

You’d need to talk your plans through with a mortgage broker – that’s where we come into it. We will look at how much money a client’s got, so they’re not going to get into financial difficulties doing the renovations. They need enough to cover the costs with a bit of contingency.

In that particular case, in 12 months’ time those clients will have a lovely property and we’re doing it the most cost-effective way. Tracker rate mortgages at the moment are a little bit more expensive than fixed rate mortgages, but they give you the flexibility to review the mortgage without any penalties [podcast recorded in January 2025].

Are there any alternative options to renovate a property as a First Time Buyer?

I’ve got one client at the moment who has spent about £65,000. He’s gone to the Bank of Mum and Dad, but they are now saying they want the money back.

Unfortunately, that’s not something I can arrange. But second mortgages are an option. That client is arranging a second mortgage, because he’s tied into a five year fixed rate with super expensive early repayment charges. We will renegotiate the mortgage in three years time at the end of the five-year fix.

So, there are other things we can do. I’m not actually arranging that one, I can’t do it for him as second mortgages are a specialist product, but he wanted me involved. I’d arranged his friends’ mortgages, which is why he’s got in contact. It’s not something I can do, but I’m steering him in the right direction.

What else do we need to know about renovation mortgages for a First Time Buyer?

We’ve probably covered everything. It’s very much down to circumstances, and that’s where a good mortgage broker will talk to you. They’ll listen to what you’re looking to achieve and they’ll hopefully have the experience to guide you in the best possible way.

It might be the Bank of Mum and Dad or taking a slightly larger mortgage and keeping back savings. A decent mortgage broker will chat through your circumstances and plans and support you through the process.
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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