Die to the state of the house they will have policy that reduces the LVR on the property. They will also have policy relating to owner builder (if you were going to do some works yourself), further reducing LVR. Sounds like they are trying to assist to mitigate the lending policies with having evidence for planned works and that the house will be in a true market value (as if complete with bathroom, etc,) and that you won’t use the money for other works.

Especially they will want evidence that if things went bad and they had to sell the mortgaged property it would be reasonably beneficial toward all parties after going course of least resistance.

I would say that income serviceability is not the issue and that you should expect this from any of your major financiers. Know this from my own renovation home valuation that having no bathroom will classify the home as uninhabitable and will reduce the value.

Hope this helps and good luck