How to get a derelict building a mortgage

Doer-upper mortgages

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Can you get a mortgage on an uninhabitable or dilapidated property?

We’re not going to lie; getting a mortgage on an uninhabitable or dilapidated property isn’t easy. Unfortunately, there aren't many lenders willing to take that kind of risk, and the hoops you’ll have to jump through to qualify are quite complex.

However, there are ways around it, and that’s what we'll talk about today.

Ultimately, our advice would be for those looking for a bargain ‘fixer-upper’ then find a property that needs primarily cosmetic work and nothing structural—run-down, yes, but still habitable and functional. That way, you can save some money, build its value through a little additional hard work, and still qualify for a mortgage you need to land your bargain.

Why are mortgages so hard to acquire for run-down properties?

Every lender wants a nice easy route to making money. They want to pursue low-risk loans with an easy-to-manage return.

Redevelopment projects are quite a speciality, not to be taken lightly or managed by those without the relevant skills or finances to make good of them.

If a project fails, the lender needs to recoup their losses by selling the property they now own. If it’s going to be hard to sell, that’s one more problem they don’t need, so they prefer to invest in mortgages on homes that make recovering losses as simple as possible.

What does uninhabitable mean?

What dictates uninhabitable varies from lender to lender (would you call a house habitable with the bathroom missing? We wouldn’t), yet there are plenty of common areas. The property survey should highlight most problems with a potential purchase, alerting the buyer and lender to the risks involved with the loan.

Here’s our fairly inclusive list:

  • Structural problems
  • Fails to comply with building regulations
  • Fire damage
  • Unsecure – think windows and doors at the ground-floor level
  • No suitable hot and cold water, electricity or power supply
  • No central heating
  • Properties with no kitchen or bathroom
  • Drainage issues
  • Damaged or missing toilets
  • Isn’t weatherproof – watertight or windproof
  • Properties with more than one kitchen
  • Penetrating damp
  • Unsound roof
  • Non-standard roofing material
  • Sagging floors and ceilings
  • Rotten and broken windows
  • Staircases without handrails
  • Infestation of pests and vermin
  • Health risks from damp, mould, asbestos, or other
  • Flats above 6 storeys high
  • Hi-rise flats in a block with no lift
  • Cladding, concrete, and construction materials that fail to meet building regulations
  • Certain types of flats situated above commercial premises
  • Properties sold at auction (as they’re typically in a poor state of disrepair)
  • Japanese knotweed infiltration

Okay, so you get the idea. Our list paints a pretty good picture of the issues and how beat-up a house needs to be to put lenders off putting a mortgage in place.

How to get a derelict building a mortgage

If you’re looking into getting a mortgage on a dilapidated property or a derelict building, you will need a specialist lender. Only a specialist will understand the risks and is confident you’ve got what it takes to meet their criteria and make a success out of the renovation.

They could expect you to carry out specific actions before agreeing, their interest rates will reflect the additional risk they’re taking, and you’ll have to put down a much more generous deposit. Sensible planning would suggest including a generous slush fund in the mortgage to ensure you’ve got all the funds you need to get the work done and the house ship shape and up to full value.

If you’re going to try for a mortgage, you need as much paperwork to back up your plans as possible—the more information, the better. And if you can take care of any of the issues in advance (without investing in a property you don’t own), that can help. Additionally, seeing if the vendor can rectify some of the lesser issues could help too.

Alternative finance options for non-habitable properties

Obtaining a residential mortgage may only be a short-term hiccup. If you’re confident you can bring the building to an acceptable state of repair, a mortgage could be on the cards at a near-future date.

What can you do in the interim?

Mortgage retention

In cases where the work required isn’t overly demanding, a lender may hold back some of the finances you need until you take care of the issues that concern the property's liveability.

Once you’ve taken care of those, they’ll release the withheld funds as your final payment.

Bridging loans

Bridging finance is probably the most popular method of borrowing money to get a property up to scratch and mortgage friendly.

The term of a bridging loan typically runs between 6 months and a year, although it can be arranged to last longer in specific circumstances. Hopefully, that gives the developer or homeowner enough time to rectify the issues they face and deliver a solid and stable property.

With a mortgage, affordability relies heavily on the buyer’s income, but with a bridging loan, eligibility is all about the exit strategy. If you can show you have a solid plan to repay the loan on completion, then that’s more or less all the lenders need to see. Your exit strategy could be selling the renovated property, acquiring a residential, commercial, or buy-to-let mortgage, or releasing capital from another asset.

Once approved, bridging loans are far easier to set up than mortgages, so they are regularly the primary source of finance for property auction purchases. Auctioneers require payment within 28 days—not nearly long enough to secure most mortgages but easily long enough to put a bridging loan in place.

Second charge mortgages

A second charge mortgage is an additional loan secured against your existing mortgage. You’ll need enough equity in your home to cover the loan amount, and you’ll need to meet all the affordability criteria of both mortgages.

Lenders are far more likely to approve a loan against a property they know they’ll have little trouble selling, although the risk to the buyer is that they may lose both properties if their plan goes terribly wrong.

Visit the bank of family and friends

If your savings won’t cover the work required to get the property in mortgage-worthy shape, would your family or a friend with the available capital be willing to join the venture? It could provide more lucrative, lower-interest options, but be prepared; business and pleasure don’t always make the best bedfellows; you could stand to lose more than the money and property.

Additional considerations when renovating a property

There will always be unexpected costs and surprises

Budget is the primary concern, and with that may come all kinds of unexpected costs. For example, simple renovations to bathrooms and kitchens or a roof repair or rewire might uncover some nasty surprises beneath the surface, behind the walls or within the walls and structure.

Do you need planning permission?

If you’re knocking down walls, extending rooms, or changing the layout of a property, have you confirmed whether or not those changes require planning permission from the local authority? If you fail to do your due diligence, and even if one neighbour complains, you may have to undo all the work you’ve done so far, adding to the cost and wasting money you’ve already spent.

Should you consider project management?

It might seem like a simple process, but is it? Would a qualified project manager better handle your project? They hold the contacts and experience to get the job done faster and cheaper. They’ll know all the typical pitfalls you’re likely to make, saving you time and money in the long run.

Know your limits

You’re pretty good with a screwdriver and a drill; surely you can manage a few bigger jobs than you’ve undertaken so far? Don’t be so sure. Many renovations have come unstuck where buyers have bitten off more than they can chew. Be realistic and save yourself the costs and embarrassment of hiring someone to put your mistakes straight.


As exciting a challenge and prospect as buying a broken-down house can bring, there’s a lot to unpack. You only have to watch a few episodes of Grand Designs or Homes Under the Hammer to know that so many of these undertakings run over budget and schedule. There are plenty of good reasons lenders are reluctant to finance these projects, even with professional developers and renovation experts.

Get expert advice

Whether it's finance, legal, or building regulations, always consult an expert. Get as precise and predictable an outcome as possible, and always have more in the tank than you need. Chances are, you'll need to pay for some surprises along the way, or the whole project will tank.

CLS Money works with all types of lenders throughout the country as borrowers look to finance such a project. We’re happy to discuss your chances of landing an uninhabitable mortgage in Scotland, England or Wales. If we can’t find a mortgage for your dilapidated property project, we’ll work with you to find a bridging loan lender or second-charge mortgage provider who may be willing to help.

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Gemma May

Mortgage Advisor

Gemma May

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