Renovation mortgage: how it works and main advantages

How a renovation mortgage works

A renovation mortgage is a type of financing that allows covering both the purchase price of the property and the expected renovation costs under a single contract. The amount provided by the bank is typically divided into two instalments: the first is allocated to the purchase of the property, while the second is progressively released based on the progress of the construction work. This mechanism makes it possible to plan the entire project without having to rely on separate financing or advance personal liquidity to cover building costs.

Let’s look at the three main advantages of this solution, which can turn an ambitious project into a manageable and well-structured path.

First advantage: savings on overall costs

The first and most immediate advantage of a renovation mortgage is the ability to combine in a single contract the capital intended for the purchase and that required for the works. This eliminates the need to take out two separate loans, resulting in a reduction in ancillary expenses, application fees, and overall notarial costs.

From an interest rate perspective, mortgages for purchase and renovation generally benefit from the same conditions applied to traditional home loans, which are historically more advantageous than consumer credit products. The result is a lower overall monthly payment and more solid medium- to long-term financial planning, with real savings on the total amount of interest paid over the amortization period.

Second advantage: flexibility of use

Unlike a standard mortgage, in a renovation loan the capital is not disbursed in a single payment but is made available in successive instalments, linked to the actual progress of the construction work according to the “state of completion” mechanism (SAL). This approach protects both the buyer and the lending institution, ensuring that funds are always proportional to the work actually carried out.

The SAL structure provides the buyer with precise and continuous control over the management of resources: payments to contractors are made in scheduled and verifiable stages, significantly reducing the risk of mismatches between available financing and construction needs. As a result, the entire process becomes more transparent, with the bank also indirectly monitoring the quality and timing of the works through technical inspections.

Third advantage: increase in property value

Investing in renovation means directly acting on the variables that determine a property’s value. A well-planned intervention — including the renewal of systems, the redevelopment of interior spaces, and the improvement of finishes — can result in a significant increase in the property’s sale value, often exceeding the cost of the works themselves. In a selective market such as the luxury segment, the quality of the finished property is a key factor in how value is perceived by potential buyers, who recognize it as a potentially more profitable real estate investment.

Why rely on Engel & Völkers

Buying a property to renovate requires skills that go far beyond simply finding the right home. It calls for integrated consultancy capable of guiding buyers in assessing the property’s potential, identifying the most suitable financing solutions, and managing the operational phases after the deed is signed.

Engel & Völkers advisors support buyers in selecting properties with the highest potential for value enhancement, guide them towards the most competitive renovation mortgage options, and facilitate access to a trusted network of qualified professionals, ensuring a transparent and secure management of the entire process, from planning to the handover of the keys.