You’ll need to think about the best way of financing your home improvements, whether it’s a new bathroom, kitchen, loft conversion or extension. Here we consider the options from extending your mortgage, remortgaging, personal loans and credit cards. In a 2019 Homeowner Survey, almost 40%of homeowners put off carrying out renovations due to having to sort out financing. If you are not cash rich, 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 (personal) loan or credit card. Using your mortgage for home improvements usually offers the best rates, but shop around for the best deal — switching mortgages can save you money and help reduce the impact of a bigger mortgage.
How do I remortgage to pay for my home improvements?
A remortgage may involve transferring your mortgage from one lender to another.
Providing you aren’t locked into any special introductory terms or reduced rates with early repayment charges, remortgaging may be a way to increase your borrowing and get a better deal.
You will need sufficient extra equity in the property and prove you can afford the bigger repayments.
You should factor in any switching costs, but many deals offer a free valuation and free legal work for remortgages, which helps to reduce set up fees.
Can I increase my current mortgage to pay for home improvements?
If your current mortgage is a cracking rate and you don’t want to lose it, or it’s a deal with early repayment charges, you could consider additional borrowing from your existing mortgage lender. The rates might not be as good and there may still be fees but it could work out to be the cheapest overall deal.
Will all lenders extend a mortgage for home improvements?
They will ask the reason for raising capital but, subject to affordability, may allow equity to be released, 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 restrict the LTV to typically to 85% or 90% of the property value. That will be based on the current property value and not an estimated value when the improvements are done.
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 and reduced the LTV there may be an opportunity to improve the mortgage options.
A second mortgage
In addition to your existing mortgage, another option is to find a second mortgage, also known as a secured charge loan, from another provider.
But… these loans usually have higher interest rates.
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 and can afford the extra borrowing and the time period over which it needs to be paid back (often 25 years).
Many suppliers and retailers these days have the ability to arrange finance for you at the point of sale. These will typically be unsecured loans where the funds are paid by the lender directly to the supplier. Any retailer who offers this type of credit must be authorised by the Financial Conduct Authority (FCA) as a broker and will often have a panel of lenders to give customers more options. This method of payment offers additional protection under the Consumer Credit Act in the event of your builder or other trades professional going out of business.
Other funding options – credit cards and unsecured loans
You could use a credit card depending on the amount required. As with point-of-sale credit, you also benefit from the additional protection of the Consumer Credit Act. It’s important to be aware that these will generally come at higher rates than mortgages and loans so it’s important to consider all the options, particularly for larger projects.
Finally, you may consider using an unsecured personal loan. Rates and terms can vary depending on the lender and the credit rating of the customer but the monies are paid to you, so that does allow you to shop around for the right supplier.
Propensio Finance offers a range of lending products and assesses customers on their individual circumstances so we can lend against all credit types, even those customers with a less than perfect credit rating. Our flexible range of borrowing options means we can often help when others can’t.