Secured Loan on a Listed Building

Grade I, Grade II* and Grade II: What the Difference Means for Lending

Listed buildings in England are classified into three grades. Grade II is the most common, covering around 91% of all listed buildings. These are considered nationally important and of special interest, warranting every effort to preserve them. Grade II* (pronounced Grade Two Star) covers approximately 6% of listings and represents particularly important buildings. Grade I covers the remaining 3% — these are of exceptional interest and are the most strictly protected.

For lending purposes, the grade of listing matters significantly. Grade II properties are the most widely accepted by lenders, as they are relatively common and the restrictions, while meaningful, are manageable for owners who understand them. Grade II* and Grade I properties are accepted by a much smaller number of lenders due to the greater complexity of their protection status, the specialist insurance required and the difficulty of carrying out repairs in the event of damage.

Conservation area designation is a separate but related consideration. A building does not need to be individually listed to be in a conservation area, and conservation area restrictions on alterations can affect lender appetite even for unlisted properties within those boundaries.

Listed Building Consent and Alteration Restrictions

Any alteration to a listed building that affects its character as a building of special architectural or historic interest requires Listed Building Consent from the local planning authority. This applies to both external and internal changes, including alterations to features such as original fireplaces, windows, staircases, panelling and structural elements. Undertaking unauthorised works to a listed building is a criminal offence.

Lenders are alert to the risk that previous owners may have carried out unauthorised alterations, which can create liability for the current owner and make the property difficult to sell or insure. When assessing an application, lenders will instruct a valuer to check for any obvious signs of unauthorised works, and where concerns are identified, they may require retrospective consent or indemnity insurance as a condition of lending.

The ongoing cost of maintaining a listed building to the standard required by Historic England — using approved materials and methods — is also higher than for standard properties. Lenders factor this into their assessment of affordability and residual property risk.

Specialist Insurance Requirements

Standard home insurance policies are generally not appropriate for listed buildings. Specialist listed building insurance covers the full cost of reinstatement using traditional materials and skilled craftspeople, which can be significantly more expensive than rebuilding a standard property of similar size. Lenders will want to see evidence of appropriate buildings insurance before proceeding.

Insurers who specialise in listed buildings include Hiscox, Ecclesiastical and a number of Lloyd's of London syndicates. Premiums for listed building insurance are higher than standard policies, and some insurers impose conditions on policies for Grade I properties that can be difficult to meet. Demonstrating that you have appropriate cover in place will be a condition of any secured loan offer.

Where a listed building has experienced flood damage, subsidence or fire, the complexity of reinstatement can be much greater than for a standard property, and some insurers will not cover properties with a history of these issues. This in turn can make securing finance more difficult.

Which Lenders Will Consider a Listed Building?

The number of secured loan lenders willing to accept listed buildings is smaller than for standard properties, but meaningful options do exist. Together Money is one of the most well-known lenders in this space and will consider both Grade I and Grade II listed buildings as security, subject to valuation and insurance requirements. Shawbrook Bank also accepts listed buildings and has experience underwriting more complex property types.

High-street banks and building societies that offer secured loans typically restrict themselves to Grade II properties and may require additional conditions such as specialist valuation reports or evidence of Historic England approval for any recent works. Applications involving Grade I or Grade II* properties almost always need to go to specialist lenders.

Working with a whole-of-market broker who has experience with heritage properties is strongly recommended. They will know which lenders are actively lending on listed buildings, understand the documentation requirements and be able to present your application in the most favourable light. Attempting to apply directly without broker guidance risks wasting time with lenders who will decline based on policy alone.

Rates for listed building secured loans may carry a small premium over standard property loans, but this varies by lender and by the specific characteristics of the property.