How to finance home improvements
Whether it’s a new bathroom, kitchen, loft conversion or extension, you’ll need to think about the best way of funding your home improvement project. We look at the options from extending your mortgage, remortgaging, personal loans and credit cards
According to our 2019 annual Homeowner Survey, almost 4 in 10 homeowners (39%) have put off carrying out renovations because of the hurdle of financing home improvements. If you don’t have savings sitting in the bank that you can use, then read on for the financing options available to help you get your home improvements underway.
What are my funding options for a home improvement?
You can either fund your home improvement project:
- With cash, by increasing your mortgage to release funds, or by taking out a home improvement loan or credit card
- Using your mortgage for home improvements will usually offer the cheapest rates, but use this opportunity to shop around for the best deal — switching mortgages can save you money and help reduce the impact of a bigger mortgage.
How do I go about remortgaging to pay for my home improvement?
A remortgage involves transferring your mortgage from one lender to another.
If you aren’t tied into any special introductory terms or reduced rates with early repayment charges, then remortgaging is an ideal way to increase your borrowing and lock into a better deal.
You will need to prove you can afford the bigger mortgage and will need sufficient spare equity in the property to raise capital.
It’s important to factor in any switching costs as well but many deals will offer a free valuation and free legal work for remortgages, which helps to cut set up fees.
Speak to your lender about your options. But also speak to a mortgage broker who can scan the whole market and find the best deal for you. For more information, read our re-mortgaging made simple guide
Can I increase my existing mortgage to pay for home improvements?
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. The rates may not be quite as good and there could still be fees but it could work out to be the cheapest overall package.
Are all lenders happy to extend the mortgage for home improvements?
Lenders will ask the reason for raising capital but should allow equity to be released – i.e. additional borrowing on your mortgage – for the purpose of home improvements.
Mortgage rates vary depending on the percentage of the property your mortgage represents, known as Loan to Value or LTV. Lenders will limit the LTV to which they will allow capital 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 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 should, in turn, improve the mortgage options.
A second mortgage
Another option is that in addition to your existing mortgage, you find a second mortgage, also known as a secured charge loan, from another provider. 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).
Other funding options – credit cards and unsecured loans
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.
Paying with a credit card can also offer additional protection should your builder or other trades 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.
Top tips for adding value to your home
A loft conversion is the easiest way to add an extra bedroom and bathroom. If you can increase the number of bedrooms in a property then you will usually add to your sale price, assuming you haven’t gone beyond the top value for your street. See our loft conversion guide for more
Increase living space with a conservatory or extension. See our guide on where to start with your home extension
A bathroom makeover to ensure your bathroom looks, at the very least, fresh and clean is essential. 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 refurb
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?