Remortgaging for home improvements? Avoid these costly mistakes
16th September 2019
Thinking about remortgaging for home improvements?
In some cases it could make perfect sense. Having an extension built would probably be cheaper than buying a bigger house, for example, especially when you take into account stamp duty.
But in other instances, it could cost you a lot more than you imagine. We explore the pros and cons of remortgaging to improve your home.
How remortgaging works
When you remortgage your home for home improvements, you increase the size of your mortgage to free up some cash.
And there are plenty of people doing it.
Nearly 17,000 homeowners remortgaged to raise an average of £56,000 in June 2019, according to industry group UK Finance. (1)
It’s simple to apply for extra borrowing on your mortgage
It’s pretty simple to apply to remortgage your home if you want to make improvements. Just speak to your lender or mortgage broker and they’ll point you in the right direction of which form to fill in.
Your lender will want to know what you need the extra borrowing for. They’ll do an affordability check, which could be either a hard or soft credit check, depending on their rules.
The right time to remortgage for home improvements
If you want to take out a loan for home improvements, remortgaging is usually the cheapest way to do it.
Make sure you get at least three quotes from builders so you’ve got an accurate idea of how much you need to borrow.
The best time to put the borrowing on your mortgage is when:
interest rates are low so you can borrow cheaply
house prices are high, so it could be cheaper to extend your home rather than move to somewhere bigger
changes to your home will significantly improve your quality of life
When borrowing for home improvements doesn’t pay off
If you want to make money from your home improvements when you sell, make sure that their cost is lower than your home’s potential increase in value.
But don’t assume that a bigger home will always fetch a higher price than a smaller one.
And if you add another bedroom to a three-bedroom house but don’t increase the space downstairs, for example, you might find that potential buyers decide your home isn’t big enough for a family of six.
Is remortgaging for home improvements right for you?
It’s important to do your sums - and homework - before deciding whether taking on more debt for home improvements makes sense.
“Remortgaging can be a great way to fund home improvements,” said Prakash Patel, a Mortgage Adviser at Trussle. “But make sure it’s really in your interests and think about the financial impact this has on the property value as well as your mortgage monthly commitments.
“You could be increasing your mortgage repayments for a long time. If you want to know how much the additional borrowing will cost you by the time you’ve paid it off, speak to a mortgage broker.”
(1) UK Finance