You might be planning a complete home refurbishment, adding a much needed extra bedroom or installing that “wow” kitchen you’ve always wanted.
But how to pay for it all?
If you need to borrow the money then read on. In this guide we explain the different ways you can borrow money to fund your home improvements.
Can you get a home improvement mortgage?
There are plenty of mortgage options to help you pay for home improvements.
Whether this is applying for more money from your current lender, or switching to a new deal elsewhere.
Lenders like lending for home improvements. They make the property bigger, more energy efficient, warmer and more desirable.
Most improvements will also increase your home’s value and your equity.
Getting a home improvement mortgage is one of the most popular options, largely because you can borrow the money at a competitive interest rate and pay it back over a number of years.
As it’s a mortgage you still need to pass all of the normal income and affordability checks, and have sufficient equity in your home already.
Home equity explained
When you are looking to borrow against your house you need to have sufficient home equity, or equity.
This is the bit of your home that you own outright.
You can work this out as follows:
Current value of your home minus any secured mortgages and loans equals equity.
The amount of equity you have will fluctuate according to changes in property prices.
If you have a repayment mortgage then your monthly repayments will create more equity as you slowly pay off the debt. (This won’t happen with an interest only mortgage).
Accessing equity
Your equity value and loan to value percentage are important when trying to access your equity. All lenders will have a maximum LTV figure that they can go up to.
When borrowing money for home improvements, it’s normally possible to go up to 90% LTV with the right lender. The 90% figure is your current mortgage plus the extra money you need.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
Finance options
Whether your home improvement plans include a new bathroom, loft conversion or an extension, you’ll need to work out how to pay for it all.
For most people, using their mortgage to borrow the money needed is the most convenient option.
But there are other ways.
We look at the different options and explain who they could be useful for.
- Further advance
- Remortgage
- Secured loan
- Unsecured borrowing
Further advance
A further advance is a way of borrowing some extra money from your current mortgage lender.
Your main mortgage remains unaffected. The interest rates and ERCs all remain the same.
You would approach your lender and ask them to lend you the money you need for home improvements. They would create another mortgage account for the mortgage ‘top-up’.
The interest rate will be different from the main loan but should still be competitive. While you will have to pay some further advance mortgage fees, these are generally quite modest.
Further advances are reasonably simple to set up and don’t take too long.
The extra money is secured against your home but you should be able to choose a mortgage term that is affordable for you.
Having a further advance can make remortgaging a bit more complicated. This is because you have two interest rates, which will finish at different times.
Remortgage
When you remortgage you transfer your whole mortgage to a new lender.
The new lender will also allow you to apply for a larger mortgage, giving you the extra money you need for home improvements.
This is called a capital raising remortgage.
The big advantage is that you can choose the best deal from a wide range of lenders including specialist banks.
The whole amount you borrow will be under the same interest rate deal, keeping things nice and simple. And there’s only one mortgage payment each month.
It’s a new mortgage so expect to provide all of your income and expenditure details.
Remortgaging will take longer than a further advance, mainly because there’s some legal work for the solicitors to do. The remortgage fees will be higher but you may find that the deal is cheaper overall as all of the money is on the best rate.
Secured loan
If you are unable to borrow the money as a further advance or a remortgage then a secured loan, or second charge mortgage, could be the answer.
It’s quite similar to the further advance option.
You keep your existing mortgage exactly as it is now. (Useful if you have high ERC’s to pay).
You then borrow the extra money you need from a new lender, who will grant you a second mortgage.
These lenders do charge a bit more than the other two options, but they also have more flexible lending criteria. Useful if you have a blip on your credit report or are finding it difficult to fully prove your income.
Unsecured borrowing
Unsecured borrowing includes home improvement loans, personal loans and credit cards.
They allow you to borrow money without putting up any security, such as your home. Instead, the lender relies on your credit score.
Personal loans are setup so that you make fixed monthly repayments over a certain number of years. The term is not normally as generous as those available with a mortgage.
Credit cards don’t require any fixed repayment plan, you just need to meet the minimum monthly payments. But the interest and fees can be cripplingly high. Convenient to get you out of a sticky period but you don’t want to keep a balance owing for too long.
If your home improvement project is particularly expensive, you may find that a personal loan lender cannot offer enough to cover it.
Get access to expert brokers and specialist second charge lenders
Award winning service
Independent mortgage advice
FCA Regulated
Bridging loans
Bridging loans can be used to pay for home improvements, and they are quick to arrange.
But they are not suitable for everyone.
The big advantage with bridging is the speed of set up. The lenders are used to working to deadlines, so it’s possible to have your money within just a few weeks.
They are very much a short-term, temporary borrowing facility, that is always secured against property or land. The interest is charged monthly and the maximum term is between 12-24 months.
They are often used by investors or developers to raise money quickly to get projects finished.
That said, bridging lenders are well-known for considering loans against any type of property, in any state of repair. You can even get one for an uninhabitable property.
Bridge loans are really flexible but you do need an exit strategy (repayment plan) for it to be paid off on time.
Equity release for home improvements
Equity release, or lifetime mortgages, are for homeowners aged 55 or over.
They provide a way of accessing the equity, without making any repayments, or selling your home.
The money raised is tax-free and can be used for any purpose, including making home improvements or alterations.
If you have any mortgages or secured loans already then these need to be repaid when the equity release mortgage starts.
What can a home improvement mortgage be used for?
When you’re looking to enhance and add value to your home, a home improvement mortgage can be a practical solution.
Here are some of the common improvements this type of mortgage can help with:
Structural Changes: Transform your living space with extensions or loft conversions, creating more room and potentially increasing your home’s value.
Energy-Saving Modifications: Upgrade to energy-efficient options like insulation, double-glazing, heat pumps or eco-friendly solar panels. These not only reduce your carbon footprint but can also save on energy bills.
Kitchen and Bathroom Updates: Revitalise the heart of your home with a modern kitchen refurbishment or a sleek new bathroom. These renovations can significantly enhance your home’s functionality and aesthetic appeal.
Interior Decoration: Refresh your home’s look with new paint, flooring, or other interior design improvements, giving your space a new lease of life.
Outdoor Living Enhancements: Expand your living area outdoors with additions like conservatories, garden patios, or landscaped gardens, perfect for relaxation and entertainment.
Heating and Plumbing Overhauls: Improve your home’s comfort and efficiency by updating the heating system, boiler, or plumbing.
Other considerations
Whatever type of project you need to borrow money for, you could be affected by some of these additional factors:
Your age
There are plenty of options available for older borrowers, including those in their 60’s and 70’s. But remember, if the mortgage term extends beyond age 65, this will be classed as borrowing into retirement and the lender will want assurances (and proof) that you have enough income to pay them back.
Credit status
If you have experienced credit problems then your current lender may not approve a further advance. Fortunately, there are lots of remortgage options where you can switch lender and raise extra money at the same time.
Early repayment charges
If you have high ERC’s on your main mortgage then you will first want to consider a further advance or secured loan. This leaves the main loan in place so you don’t get charged for ERCs. It is still possible to remortgage to a new lender but you will have to be certain that it’s worth paying the expensive early repayment charges.
Equity
Whether you go for a further advance, remortgage or secured loan, you need to have enough equity in your home to borrow against. Importantly, you cannot borrow all of it, as this would be 100% borrowing. The maximum combined loan to value is generally around 90-95%.
Financial situation
If your financial situation has changed since you first applied for your mortgage then you may no longer fit the lender’s criteria. Often this will be because of a change from employed to self-employed. Your other debts and credit commitments will also impact on your borrowing ability as lenders will be looking at your debt-to-income ratio. Basically, how much of your income is spent on servicing debt.
Property type
For most people the ‘type’ of property they live in does not pose a problem. But mortgage lenders have their own rules and some will be more picky than others. Property types that can cause as issue are PRC concrete, steel framed, flats above shops and any kind of non-standard construction. If any of these apply to you then it will reduce the number of lenders.
Property value
The value of your property is used to work out how much equity you have. Get this wrong and you may not be able to borrow as much as you first thought. You will have an idea on what your home is worth. When you apply for a mortgage the lender will ask a valuer to give their opinion, which could be lower. So do some research beforehand so you have a realistic figure to work with.
Mortgage advice
It’s fairly straightforward to approach your current lender for a further advance to pay for your home improvements.
And most lenders will be happy to consider a remortgage on this basis.
But it will be hard to know what is the best option for you, and which lender will accept you, without speaking to a mortgage broker first.
Whole of market brokers have access to over 100 lenders and can advise on further advances, remortgages and secured loans.
They can run through the different options, explain the costs, and help you decide on the best one.
To get started, give us a call on 0330 030 5050 or tap the button below.
