Remortgage for home improvements

Remortgaging is a common way for homeowners to raise the 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 and also make it more enjoyable to live in.

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

Equity is the word used to describe 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 secured on your home.

If you bought your home with a 15% deposit then you’d have 15% equity.

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

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

A remortgage is when you switch your existing 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 a higher amount than you already owe on your mortgage.

For example, 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 release money for home improvements will generally mean 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 won’t go up so much, if at all.

For example, 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 previously. 

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

What are home improvement loans?

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

A home improvement loan isn't a specific type of loan, it just describes how you're going to use the money.

A home improvement loan may be:

  • secured

  • unsecured

A secured home improvement loan is where the money borrowed to pay for home improvements is secured 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 be offered.

You can also use second charge mortgages, home equity loans, renovation loans, or homeowner loans to help fund home improvements.

Secured loans tend to be cheaper than unsecured loans. 

You may be able to borrow a larger amount of money compared to an unsecured loan.

However, secured borrowing can be a risky choice, as the lender can repossess your property if you don’t repay the loan.

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

The money is not secured against anything you own, so this type of loan is riskier for the lender.

Because of this, unsecured loans tend to come with 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 and 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 similar to that of your mortgage (i.e. up to 25 years).

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

You can normally borrow more money with a secured home improvement loan compared to an unsecured home improvement loan. This’ll be subject to 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 money (normally 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 APR on the loan

  • the term

  • your monthly repayments

  • the total you will repay

Will home improvements add value to my home?

According to a survey by Halifax¹, the home improvement that adds the most value is an attic or loft conversion.

Halifax found that homeowners converting 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 plants are added to the roof of a house. 

This typically adds £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

There are numerous other ways to increase the value of your home. These include:

  • 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 successfully adding value to your home is to work out whether the added value to your home will be more than the cost of the work. 

If you borrow money to fund home improvements you’ll need to take borrowing costs, such as interest and fees, into consideration too.

For example, 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 

Transforming your garden or internal decorations might be something you can do yourself at a low cost. 

This way it 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?