Buying a Derelict House: Grants, Loans and the VAT Rule

Search for derelict property in the UK and you will turn up headlines about houses sold for a pound, abandoned homes given away, and a specific five figure grant for anyone willing to take one on. Some of that is out of date, and some of it was never quite right. There is help available, but it is usually a loan rather than a grant, it is usually discretionary, and the biggest single saving for most buyers is a VAT rule that people new to renovation tend to miss.

Here is what actually exists, and what it means if you are looking at a wreck.

The one pound houses

A handful of councils, mostly in places with long term empty terraces, have sold properties for a nominal sum. Liverpool's homes for a pound scheme is the best known one and it has closed. The conditions were heavy: renovate to a set standard within a fixed period, live there for several years afterwards, and prove up front that you could fund the work. Demand far outstripped the number of houses.

Schemes like this have become rare rather than extinct. They tend to surface when a council has a block of empty stock it wants back in use, and they are advertised locally. There is no national register and no waiting list to join. If you want to know whether anything is happening in your area, ask the council's empty homes officer. Most authorities have one, or someone covering the role under another job title.

As for the grant figure that circulates on social media, there is no single national grant for doing up a derelict house. Individual councils and some regeneration programmes do run their own schemes, so it is worth asking locally, but what you are usually offered is a loan.

Empty Property Grant Finder

Find out what funding, loans and VAT relief might be available for bringing an empty or derelict property back into use.

Try our Empty Property Grant Finder free, here on this site →

What your council might offer

Empty property loans are the most common form of help. The usual shape is a loan secured against the property to pay for the work, sometimes interest free or at a low rate, with conditions attached: bring the home up to a lettable or liveable standard, then live in it or let it, often with the council having some say over who the tenant is for a set period. Terms vary a lot between authorities, and plenty of councils offer nothing at all. These are discretionary, so a council can turn you down, change the terms, or simply run out of budget partway through the year.

Three other things worth raising in the same conversation:

• Council tax on empty homes. Long term empty properties usually attract a premium on top of the normal bill, and it can rise the longer the place stands empty. Some councils will allow a short discount or exemption while major work is going on, but that is at their discretion. Check before you buy, because it is a real running cost during the build.
• Disabled Facilities Grants, if the person who will live there has a disability. This is a statutory grant administered by councils and it is means tested. Details are on GOV.UK.
• Any local regeneration or living over the shop scheme, particularly for flats above commercial units.

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

The VAT rules worth chasing

Building work on a home that has not been lived in for at least two years immediately before the work starts can qualify for a reduced rate of VAT instead of the standard rate. Where a property has been empty for ten years or more, it is treated as non residential for VAT purposes, which can bring zero rating into play, though that normally applies to the first sale or long lease by whoever carried out the conversion rather than to the builder's invoice. The detail is in VAT Notice 708.

Two things trip people up. The reduced rate is applied by the builder when they invoice you. It is not something you pay in full and claim back from HMRC later. A builder who is not VAT registered cannot charge you VAT at all, so there is nothing to reduce, but one who is registered and unwilling to look into it will cost you the difference. Ask before you appoint anyone. Second, the relief covers the builder's work and the materials they supply as part of that work, not materials you buy yourself.

Get evidence of how long the property was empty, because the builder will want it on file. A letter from the council's empty homes officer or council tax records is the usual proof. The DIY Housebuilders Scheme is sometimes suggested for people doing the work themselves, but it is aimed at new builds and conversions rather than renovations, so check with HMRC before assuming it covers you.

Paying for a house no lender wants

Mainstream mortgage lenders want somewhere habitable now: watertight, with a working kitchen and bathroom and no obvious structural problem. A derelict house is none of those, so an ordinary mortgage is usually off the table. That leaves cash, a bridging loan, or a renovation mortgage that releases money in stages against a surveyor signing off each one.

Bridging is quick and expensive. Interest is charged monthly, there are arrangement and exit fees, and the lender will want a credible exit, normally refinancing onto a normal mortgage once the house is liveable, or selling. Work on derelict houses overruns often, and the cost keeps accruing while it does.

Auctions add another layer. At a traditional auction you are committed when the hammer falls, the deposit is due on the day and completion is usually within a month. Most buyers have not had a survey, and the legal pack can hide problems that are easy to miss when you are reading it in a hurry. Budget for the buyer's fees on top of the hammer price.

On the building itself, the unknowns are roof, damp, rot, wiring, plumbing, drains and asbestos. None of that is priceable from the pavement, which is why getting a builder round before you bid is worth more than another thousand pounds of headroom on the day.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Empty Property Grant Finder lets you find out what funding, loans and VAT relief might be available for bringing an empty or derelict property back into use. Try it now →