Remortgage for home improvements
One of the top reasons for remortgaging is to raise money to help to pay for renovation work. A remortgage for home improvements can allow you to use your property to access additional funds to carry out works on it.
There are a few things to think about before you consider taking equity out of your property to carry out works. In this section we explain how remortgaging for home improvements works and the answers to some of the most common questions.
In recent years it has also become more costly to move home and so more people are looking to make home improvements than ever before.
About remortgaging for home improvements
Here we review some of the main things that you’ll need to think about before you consider remortgaging for home improvements.
Often people don’t think about the full picture before they go through this process and mistakes can be costly. It’s important to understand all of the potential Pros and Cons to remortgaging for home improvements before you take the plunge.
How to remortgage for home improvements?
Most people with an existing mortgage will have the option to remortgage to raise capital to pay for improvements or renovations to their home.
There are a few key things to think about before you apply for your remortgage.
- Equity – does your property have enough equity to be able to release the amount of capital that you’ll need to pay for the work?
- Early repayment charges (ERCs) – are you currently tied in to your existing mortgage lender and deal with an early repayment charge? It is however possible to find mortgages with no early repayment charges as shown in our helpful guide.
- Further advance – will your existing lender allow you to take out a further advance on your existing mortgage?
- Cost of work – is the cost of the work that you have been quoted for reasonable and is it affordable?
- Value – will the work that you are planning on carrying out add value to your property or could it harm the value?
Lenders will want to assess the work that you are planning on doing to make sure that it is a good idea and will add value.
The process for applying for a remortgage for home improvements is similar to a normal remortgage apart from providing estimates for the work. You’ll usually be able to apply via the normal routes which are:
- Mortgage advisor or mortgage broker
- Existing lender
- Bank or Building Society
- Online mortgage broker
You should carefully consider which option is best for you to get the best remortgage deals based on your circumstances.
For further information on remortgages CLICK HERE.
Can I remortgage for home improvements?
Yes, you should be able to remortgage your property to raise money to pay for home improvements.
There are a few things to consider when thinking about going down this route, such as:
- Credit score – do you have issues with your credit history or a low credit score that might impact your remortgage rates and fees
- Loan to Value (LTV) – have you got enough equity in your home to release enough capital for the work that you have planned
- Charges and fees – there are charges to consider such as Early Repayment Charges (ERCs) and mortgage fees
- Property type – is your existing property right for the work that you are doing and will it add value
- Planning permission – you might also need to think about whether you will need planning permission for your home improvements
- Moving home – is it better to simply move home to get the space or rooms that you need rather than improve your existing home
You should carefully consider these points before you make any final decision, that being said it is often a great option.
Once you’ve made the decision to improve your home then you’ll also need to think about the timescales to get your remortgage. There will also usually be a period of disruption when the work is being done that many people don’t consider properly.
Is it a good idea to remortgage for home improvements?
Getting a remortgage for home improvements is often the cheapest and least disruptive way to get the space you want.
The biggest benefits to getting a remortgage for home improvements are:
- No need to move home (e.g. finding a new property that suits you and your family)
- Often cheaper than moving home
- Plan exactly what you want
- Add value greater than the cost of the work
- Less disruption for you and your family
There are other things to think about as well, especially if your existing mortgage deal has ended and you are on the lenders Standard Variable Rate (SVR). You can reduce your monthly mortgage payments significantly by switching to a better deal.
It is estimated that you could save nearly £2,200 per year on average by remortgaging from a Standard Variable Rate.
How much can you remortgage for home improvements?
There are two key elements that will determine how much capital you can release from your existing property.
- Affordability – your remortgage will also need to fit within the lenders affordability criteria to make sure that you can afford to make repayments. All lenders will have their own calculations for affordability and that will take in to account your income and your expenditure. Most lenders will offer somewhere between 4 and 5 times income multiples as a rule
- Loan to Value (LTV) – another critical area of consideration is to think about the amount of equity that you have in your current property. Some lenders may have a cap or maximum loan to value that they are prepared lend for home improvements (e.g. 85% or 90%). You should be able to release up to 90% equity for home improvements in most cases because of the improvements adding value to your home
Your existing mortgage will also need to be repaid when you remortgage for home improvements so any equity will be calculated after your mortgage has been repaid.
It is also worth considering factoring in an amount that you might need for overspending if your improvements exceed budget (which is a common problem).
Is it worth remortgaging for home improvements?
This is a great question and something to think about before you carry out any work on your property.
One of the biggest things to consider is that any money that you borrow will incur interest over the term of your mortgage. You should consider how much you need to borrow and how much you will pay back on that amount over the full period.
When considering interest rates, a fixed-rate mortgage can be helpful in a lot of cases. With this mortgage the interest rate is set at a fixed price for an agreed amount of years, allowing for solid financial planning.
It is also likely that the amount of money that you spend on your home will also increase the value by the same amount or hopefully more. Your property will also increase in value with inflation and house price rises which should be taken in to consideration.
Some people might also want to carry out home improvements as a short term solution with a view to selling your home.
In most cases the answer should be YES and especially in a buoyant property market where house prices are rising consistently.
Home improvements loan v remortgage
You also have the option to take out a secured or unsecured loan for home improvements that can be quicker and easier than a remortgage.
Generally you’ll find that these types of loans will be higher interest rates than mortgages and will usually be over a shorter term. A loan can be attractive because it’s sometimes more flexible than a mortgage, so you may be able to get more money.
Here are some of the Pros and Cons of home improvement loans v mortgages:
Home improvement loans (Secured and unsecured)
Pros
- Can be much quicker to release money
- Acceptance rates can be higher
- May be easier to get for bad credit
- Possible to release more than the value of your property
Cons
- Higher interest rates
- Shorter terms than mortgages generally
- Repayments will usually be far higher
- Penalty for early repayments
- Less flexible in terms of interest rate options
- Fees and charges can be high
Home improvement remortgages
Pros
- Lowest rates for any type of finance
- Easier for existing borrowers
- Can be good for people with bad credit
- Lots of options for deals and lenders
- More highly regulated so generally safer
- Fees and charges are generally lower
Cons
- Can take longer to arrange
- May require more evidence (e.g. income, estimates, etc.)
- Some lenders may refuse if criteria is not met
- Early repayment charges will usually apply
How do I prove home improvements for remortgage?
Often it is a stipulation of a mortgage offer for home improvements to provide some evidence or estimates for the work to be done.
This can be something that will be required early in the application process or towards the end, before an your mortgage offer is given. It is generally a good idea to get this done very early on in the process for your own reference as well as for the lender.
It’s wise to speak to a few companies or builders to get a good idea of what is a good price and what different builders offer. Most lenders won’t need to see much more than an estimate and it’s up to you to find a qualified builder that you trust.
Some of the key things to consider when looking for a tradesperson or company:
- Reputation or recommendations – are they someone that you know or that has been recommended by a friend or family member
- Examples of previous work – it’s a good idea to ask to see some examples of similar or other projects they’ve done
- Pay at the end or in instalments – you should never pay for work upfront and be very wary of any builder who asks for payment at the start of the project
- Get comparable quotes – most builders will expect you to get several quotes and then you can compare each to find the best for you
Some lenders may want to see evidence of the works being carried out, especially for major projects. You might also have the money released to you in stages which is similar to a new build mortgage.
What home improvements can I remortgage for?
Everyone’s needs will be different and your home improvements will generally be unique to you for your own needs.
Some of the most common home improvement projects are:
- Remortgage to build an extension: the most common reason for home improvements remortgages is to build an extension on your property. This is a great way to increase the value of your house and to give you extra living space in the meantime. Extensions can give your property a completely new dimension and can be a great alternative to moving home, and more cost effective
- Remortgage for a loft conversion: another common home improvement is to convert your unused loft or attic space in to a living space. This can be easier and more feasible in some properties than others. A loft conversion is also usually cheaper to do than a full extension in order to get the extra space that you need. Often this type of work if done will, will increase the value of your home by more than the cost of the actual work
- Remortgage for renovations or decoration: another potential reason for wanting to do work to your current home is to update or improve the internal or external space. Some of these can be new kitchens or bathrooms and things like general renovations to modernise your living space. Houses get tired after you’ve lived in them so it’s not unreasonable to want to improve your living space
I’m 50, should I remortgage to do home improvements?
You can remortgage your home almost whenever you want and for any reasonable purpose as long as it’s within reason.
People may have different living or lifestyle needs as they move towards or in to retirement age. You might want to make adjustments to your existing property to make it more suitable for you and your family (e.g. stairlifts, bathroom equipment, or landscaping).
There may be some additional considerations or restrictions to think about later in life that you may need to think about.
Some other considerations for later life lending:
- Proof of income after retirement – if you are going to be borrowing money past your retirement age then some lenders may require evidence (e.g. pension income) and might restrict lending
- Later life lending – over the age of 55 you will usually be eligible for equity release or lifetime mortgages. This might be a better and more cost effective option than taking out a remortgage
- Mortgages in to retirement – will your remortgage payments be affordable for you after and in to retirement, depending on when your mortgage will come to an end
If you need advice about getting a remortgage for home improvements then you can contact our team of experts.