Remortgage for home improvements

Remortgaging is a common way for homeowners to raise money to pay for home improvements.

Popular home improvements can include:

  • converting a loft 

  • building an extension

  • refitting a kitchen or bathroom.

Making these changes to your property can boost its value. It can also make it nicer to live in.

You’ll need enough equity in your property if you want to remortgage for home improvements.

Equity refers to how much of your home you own.

It’s the difference between the amount you owe on your mortgage and the value of your home. Plus any other loans you have on your home.

You'll have 15% equity if you bought your home with a 15% deposit.

The amount of equity you have will go up as you repay your mortgage.

If the value of your property goes up your equity will increase too.

A remortgage is when you switch your current mortgage deal to another one. 

This can be with a different lender, if you choose.

If you want to remortgage to release equity, you’ll need to remortgage for more than you already owe on your mortgage.

So if your home is worth £200,000, and your current mortgage is for £100,000, you might want to remortgage for £120,000. 

Your current mortgage of £100,000 will be paid off and you’ll get £20,000 in cash.

You can use this money to pay for home improvements, but you’ll now owe £120,000 on your mortgage.

Do the sums

Remortgaging to fund home improvements often means your monthly mortgage payments will go up.

Using the above example, a £100,000 mortgage at 3% over 20 years will cost £555 a month. 

Remortgaging for £120,000 at the same interest rate will mean monthly payments of £666.

If you’re able to find a cheaper rate, your payment will not go up so much, if at all.

So if you remortgaged for £120,000 over 20 years at an interest rate of 1.5%, you would pay £579 a month. Just £24 more than before. 

Using a mortgage broker like Trussle to remortgage can help you find these cheaper deals.

What are home improvement loans?

A home improvement loan is a loan you take out to help pay for renovation or repair work on your home.

It's not a specific type of loan. It describes how you're going to use the money.

A home improvement loan may be:

  • secured

  • unsecured

A secured home improvement loan is when you secure the money you borrow for home improvements against your home.

You’ll need enough equity in your home to be able to get a secured home improvement loan.

The more equity you have, the better the loan rate you’ll get.

To fund home improvements you can also use:

Secured loans are often cost less than unsecured loans. 

You may be able to borrow more than you could with an unsecured loan.

But secured borrowing can be a risky choice. The lender can repossess your property if you do not repay the loan.

An unsecured home improvement loan is a type of personal loan.

The money is not secured against anything you own. So it's more of a risk to the lender.

Because of this, unsecured loans often have higher interest rates than secured loans. And loan amounts are usually lower than for secured loans.

How much you can borrow will depend on your income and your credit history.

How do home improvement loans work?

When you take out a home improvement loan you borrow a fixed amount of money. You then pay it back, plus interest in monthly instalments over a pre-agreed “term”. 

Once you've paid your loan in full, your account is closed.

The interest rate on the loan may be either fixed or variable.

If you take out a secured home improvement loan, the term may be like your mortgage (for instance up to 25 years).

If you take out an unsecured home improvement loan, the term is likely to be shorter (often 2 to 7 years).

You can usually borrow more with a secured home improvement loan than an unsecured loan. This depends on how much equity you have.

You should shop around for the best home improvement loan.

Sometimes you can get a lower interest rate by borrowing more (often above £7,500). 

But be careful not to borrow more than you can afford to repay.

A home improvement loan calculator will show you the:

  • annual percentage rate (APR) on the loan

  • term

  • monthly repayments

  • total you'll repay

Will home improvements add value to my home?

According to Halifax¹, attics or loft conversions add the most value to your home.

Halifax found that those who convert their loft can expect to add an average of £11,020 to the value of their home.

The second most lucrative improvement was a “living roof”. 

A living roof is an Instagrammable feature where you add plants to the roof of a house. 

This can add up to £8,676 to the value of your home.

Other good home improvements include:

  • bi-folding doors (£5,256)

  • garage conversions (£4,847)

  • renovating period features (£4,731)

  • adding an extension (£4,129)

  • underfloor heating (£3,961)

Ways to increase the value of my home

You can also are increase the value of your home by:

  • landscaping the garden

  • fitting a new bathroom or kitchen

  • installing a new boiler or central heating system

  • replacing old windows

  • adding or replacing a driveway

  • converting a cellar

  • rewiring electrics or re-plumbing old pipes

  • decorating

The key to adding value to your home is to work out if the added value will be more than the cost of the work. 

If you borrow to fund improvements consider the borrowing costs like interest and fees.

According to Halifax adding an extension will typically boost your home’s value by £4,129. But figures from MyBuilder suggest even a small extension might cost at least £16,000.² 

You might be able to transform your garden or internal decorations by yourself at a low cost. 

This could be more cost effective when it comes to boosting your home’s value.

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Your home could be repossessed if you don't keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

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Sources

¹ Halifax press release, Feb 2020 - Lofty ambitions: UK’s most lucrative home improvements revealed

² MyBuilder.com - How much do house extensions cost?