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Whether it’s a new bathroom, kitchen, loft conversion, extension or energy saving improvements, you’ll need to think about how best to finance your home improvements. We look at the options from extending your mortgage, remortgaging, personal loans and credit cards.
According to our annual Homeowner Survey, almost 4 in 10 homeowners (39%) have put off carrying out renovations because of the hurdle of how to finance home improvements. If you don’t have savings sitting in the bank that you can use, then read on for the financing options to help you get your home improvements underway.
To get a rough idea of the cost of carrying out an extension, garage conversion, loft conversion or basement conversion, see our house extension costs at a glance:
You can either fund your renovations:
When you remortgage, you take out a new mortgage deal on the same property. You may switch to a different lender or get a new mortgage with your current lender.
While one major reason to remortgage is switch onto a better deal when your current mortgage ends in order to save money, another reason for remortgaging is to release equity from you home. This means taking out a bigger loan against your property in order to free up some of the cash you’ve built up in it.
However, remortgaging to release equity means your debt will increase and you may need to pay fees too so it’s advisable to get expert advice from a mortgage broker.
Get fee-free mortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
If you have a really good rate with your current mortgage and you don’t want to lose it, or are tied into a deal with early repayment charges, you could consider additional borrowing from your existing mortgage provider.
Although you may also want to get expert mortgage advice on your remortgage options too so you can decide which is best for you.
Lenders will ask the reason for raising capital and typically allow additional borrowing on your mortgage for the purpose of home improvements. But whether or not this is possible for you will depend on your circumstances, including your loan to value.
Lenders will limit the LTV to which they will allow funds to be raised for home improvements, typically to 85% or 90% of the property value. That will be based on the current property value and not a predicted value after completion of the work.
Bear in mind that the higher the LTV, the higher the interest rate will typically be. Of course, you can review the rate once any deal has come to an end. If the improvements have added value then there may also be an improvement in the LTV which may, in turn, improve the mortgage options.
Another option to finance home improvements if remortgaging isn’t right for you is finding a second mortgage (in addition to your existing mortgage). This is also known as a secured homeowner loan or second charge mortgage. It may be that you don’t want to remortgage to finance home improvements because you have a great mortgage deal or early repayment charges mean it is more cost effective to get a second mortgage. However, these loans usually carry higher interest rates.
Be aware that increasing your existing mortgage, remortgaging to extend your borrowing and taking out a second mortgage all involve increasing the amount of borrowing secured against your home. Make sure you are happy with the extra borrowing and the time period over which it needs to be paid back (usually 25 years).
In addition to the above mortgage options, you might consider using an unsecured personal loan or even a credit card, depending on the sums required to pay for your home renovations.
Paying with a credit card can also offer additional protection should your builder or other trade professionals go out of business.
However, these will generally come at higher rates than mortgages and so it’s important to consider all the options, particularly for larger projects.
A loft conversion is the easiest way to add an extra bedroom and bathroom. Adding bedrooms to a propertywill usually add to your sale price, assuming you haven’t gone beyond the top value for your street. See our guide to loft conversions.
Increase living space with a conservatory or extension. See where to start with your home extension
A bathroom makeover. Massive improvements can be made with just a new suite, fixtures and fittings. Add an extra bathroom, especially an ensuite, and you are likely to add value. See our guide for where to start with your bathroom refurbishment.
Improve the kitchen. It’s the heart of the home and where we wall want to be wowed. But keep your spending in proportion with your home. You’re unlikely to see returns on a £25,000 kitchen in a £250,000 home. See our guide, kitchen renovation where do I start?
Keep your exterior and windows well maintained. Updates to the exterior of your home can help to keep it in good condition and boost its kerb appeal. Replacing windows that are in poor condition will add value to your home.
Improve the energy efficiency of your home. With government proposals aiming to ensure as many homes as possible reach an EPC rating of C by 2033, making your home more energy efficient could be an important selling point for future buyers. Green mortgages could help fund improvements.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
HomeOwners Alliance Ltd is an Introducer Appointed Representative of Mortgage Advice Bureau (Derby) Limited which is authorised and regulated by the Financial Conduct Authority.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
Bridging Loan and specialist lending service provided by Chartwell Funding Limited, registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ, authorised and regulated by the Financial Conduct Authority (FRN: 458223). Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
