Borrowing extra on a mortgage for renovations First Time Buyer
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Borrowing extra on a mortgage for renovations First Time Buyer
Lee Gathercole and Neezam Romjon talk about borrowing extra on a mortgage for renovations if you are a First Time Buyer.
Podcast approved by The Openwork Partnership on 11/02/2025.
Can First Time Buyers borrow extra money on a mortgage for renovations?
It can get quite confusing if you don’t understand the logistics of how a deposit and a mortgage works against a property purchase. First Time Buyers looking to buy their first property often want to get a new bathroom or new kitchen. Or, they fall in love with the property but all the decor needs changing, or they need to do a loft conversion.
Let’s say, you’re buying a property for £200,000. You might wonder if you can get a mortgage for £230,000, giving you £30,000 to carry out the renovations. But generally in that scenario, lenders will say no.
The reason is that you can’t get a mortgage for more than 95% of what you’re paying for the property. Lenders won’t allow that. But if you have a 15% deposit you were planning to put down, a better way to do it is to reduce that deposit contribution: that 15% might go down to 5%.
Then, the money you were going to put towards the property as a deposit is instead used to renovate the property.
How much can I borrow extra on my mortgage for renovations as a First Time Buyer? What would the minimum deposit be?
The minimum deposit for buying your first home is generally 5%, at the time we’re recording in January 2025.
If you’ve only got a 5% deposit, it would be really difficult for you to use any funds to renovate the property.
Like Neezam said, if you’ve got more than a 5% deposit, perhaps 10% or 15%, you could use some of that towards the renovations, bringing it down to that minimum of 5%.
What documents will a mortgage advisor need to see for me to be able to borrow more on my mortgage for a renovation as a First Time Buyer?
You will need to have prepared the standard documents that most banks and building societies request when assessing your affordability and deciding whether to lend to you. You need photo ID and proof of income. If you’re employed, usually that’s the latest three months’ pay slips. If you have annual bonuses, commission or overtime, they might want to see a P60 or additional pay slips.
They’ll also want to see your latest three months’ bank statements to assess your everyday spending and bills. They also use those to verify if you’ve got any loans or credit cards you’re paying off.
A credit report is very helpful. When we talk to clients, we don’t necessarily have any of those documents before the call, but we’ll leave the client with a clear understanding of what we need to get them an Agreement in Principle, which would be the next step.
If you’re self-employed, it depends on how you’re set up. We often need the latest two years’ tax returns or tax calculation summaries, which you’ll get from HMRC when you submit your self-assessment. There’s also another document called a tax year overview.
If you’re a limited company director, lenders might also want to see your company accounts showing your turnover, net profit and profit and loss breakdown. We talk people through those documents specifically based on their circumstances, but having those prepared will put you on the front foot.
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Should I use a special type of mortgage broker as a First Time Buyer if I’m looking to borrow more on my mortgage to renovate my property?
It definitely helps to use a mortgage broker that works a lot with First Time Buyers. We have a lot of experience in that area.
We understand what challenges you might face and what you might experience throughout the journey. For anyone looking to buy their first home, especially if it’s a house needing a bit of work, a mortgage advisor will help you through each step.
Buying your first home is a daunting process, and you need to know what this particular property could mean for you. It might have a certain problem and be selling really cheap. We can’t necessarily advise, but we can give you the benefit of our experience.
Can I borrow more on my Buy to Let mortgage to renovate?
If you’re a First Time Buyer and you plan to buy a property not to live in, but to let out, it’s not impossible to get a mortgage – but your options will be very limited.
Most Buy to Let lenders want you to already own a property that you live in, so that limits your options. In terms of borrowing more, it works in exactly the same way. Again, if you want funds to renovate the property, it’s just a case of reducing that deposit down.
The challenge here is that most Buy to Let mortgages require you to put a 20% or 25% deposit down as a minimum. So you may not have the room to put less down for a Buy to Let mortgage.
If that is something you’re looking at, speak to an advisor. We could help you understand your options. There are also a lot of other things to factor in if you’re looking at a First Time Buyer Buy to Let mortgage.
What are the pros and cons of borrowing extra money on my mortgage to renovate?
The biggest negative is that as you’re reducing your deposit, you’re likely to qualify for a less competitive interest rate. It’s not a given, but generally interest rates are dictated by the size of the deposit.
The more you can put down, the more competitive mortgage products you’ll get. So the downside to borrowing extra is you have a bigger mortgage, and you could be hit with a higher interest rate as well.
It could be costing you a lot more in interest and monthly payments than if you weren’t renovating a property.
The pros with borrowing extra is that it could increase the property value long term. Renovating generally adds value to the property. It might not have an immediate impact, but you could qualify for better rates in the future. You’re almost taking a hit now to potentially benefit later.
How much will my monthly repayments rise if I borrow extra?
Everyone wants to know, of course, how much it will cost each month to borrow more. Unfortunately the answer to that question is just dependent on too many factors. There’s no set amount. It’s not £100 for every £10,000 you borrow, or anything like that.
It depends on how much you’re borrowing and what the mortgage term is. If you have a longer mortgage term of 35 or 40 years, the payments will increase less than on a shorter term of 10 or 15 years. It depends on the interest rate you’re paying as well, of course, and on the lender you’re approaching. Things will also vary based on your situation, your credit score, income and outgoings.
The only way to really find out is to pick up the phone and speak to an advisor. We would normally help our clients understand this in our first ‘discovery’ call. If you wanted to know how much your monthly payments would increase if you borrowed more, that’s something we can answer on the phone once we understand your circumstances and the interest rates.
How can a mortgage broker help here? Have you got anything else to add?
Seek out a mortgage broker that specialises in helping First Time Buyers. They can share with you – like we have – the pros and cons of borrowing that little bit more. We would compare the costs of renovating and not renovating in terms of mortgage borrowing.
We can also help you plan for your new property purchase, even if you’re just starting to look for properties. We’ll explain what documents are required and what you need to consider.
As we say on a lot of these podcasts, preparation is key for mortgage success. There are lots of things a mortgage broker can help with, but in particular understanding what it’s going to cost to borrow the extra to renovate the property and the pros and cons of doing that.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Approved by The Openwork Partnership on 11/02/2025.
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