Remortgage for Home Improvements
If your home desperately needs upgrading through a range of home improvements, you can release equity that you have in your property by remortgaging your home to fund these improvements. How do you go about this, though?
Due to COVID-19, numerous British homeowners have decided to improve their homes instead of hunting for new ones, and because of this, property prices are higher, and there is a shortage of property for sale. Therefore homeowners choose to remortgage for home improvements instead of bidding for properties in a competitive market environment.
On average, many homeowners choose to remortgage to fund home improvements as the interest rates are lower than credit cards or personal loans. In this article, we’ll advise you on your options and show you how to remortgage for home improvements, which could increase your home’s value for future selling options.
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Does It Make Sense to Remortgage for Home Improvements?
If you’re in a financial position to repay a higher mortgage, upgrading your existing mortgage deal is a viable option, especially if you’ll drop your current interest rate by doing so. If your personal circumstances mean you can afford to increase your existing mortgage balance and monthly payments, mortgage lenders will be happy to extend you a further advance.
Since the advent of the pandemic, remortgage applications in the UK have more than doubled compared to 2019 figures. Specialist lenders will certainly afford you the option to remortgage for home improvements depending on how much equity you have available on your current mortgage.
Still, they’ll also weigh other factors before processing an application.
What Will Lenders Assess?
A mortgage lender will consider several factors in assessing whether to approve a remortgage to fund home improvements. They will look at the following:-
- Your home’s value
- The equity you have at your disposal
- Affordability
- Your repayment and credit history
- The property type
- The renovation work you’re planning and its cost
Property value
An increase in your property value affords you a better chance of remortgaging due to a better loan-to-value rate, which is what a lender uses to establish your interest rate and borrowing capacity.
If your remortgage valuation is lower, it will limit your options as you’re not negotiating with a seller. Your only options are to discuss the valuation with your current lender, directly approach a different lender, or use a mortgage broker to find you a better deal.
Available equity
If you have minimal equity available in your home, you might find it more challenging to remortgage a mortgage deal, but then it might not be your best option. If your loan-to-value is higher, your interest rate will also be higher.
With this scenario, if your property value decreases, you might end up in a negative equity situation where the value of your mortgage exceeds the value of your home.
Affordability
When you remortgage, the sum of the loan amount will invariably rise, and your monthly repayments will increase. Whether you remortgage through an existing lender or another, the lender will first ensure that your salary is enough to cover the new repayments after considering your other expenses.
Repayment and credit
Lenders will assess how you’ve handled your mortgage to date. This history is an essential factor, and if you’ve missed repayments in the past or even been late in paying, you may find lenders loathe to offer a remortgage option. Lenders considering borrowers with poor mortgage repayment histories will likely charge inflated interest rates.
Before parting with more money, lenders will also factor in your general credit history. Like when you took out your existing mortgage, you should make sure you check your credit rating and rectify any problems you can, as this will make remortgaging for home improvements much more straightforward.
Type of property
Most financing and refinancing of mortgages occur on properties constructed that use standard methods, which presents no problems for the majority of lenders. Fewer lenders will be keen on funding home improvements for a less recognised development like a loft conversion or a studio apartment, for example.
Using non-standard building materials like timber and thatch can make for more problematic remortgaging for home improvements. Refinancing for high-rise flats, country cottages and ex-council dwellings also often raises problems. Over and above these, you’ll also have to secure the proper planning permission for alterations.
Finding a mortgage broker who can point you in the direction of specialist lenders who can assist will ease any problems you might encounter.
Scale and cost of home improvement
Most lenders consider the state of a home when mortgaging, and remortgaging is no different. Lenders will likely fund home improvements if your property is weatherproof, watertight, and habitable, with a working bathroom and a functioning kitchen.
Demolishing or rebuilding as part of your home improvement comes with its own set of potential problems. Many lenders aren’t keen on mortgaging for these kinds of renovations, but specialist renovation mortgaging is available, or you can apply for a bridging loan. Both these options will carry higher interest.
Remortgaging for Different Types of Home Improvements
Your available equity dictates what types of home improvements you’ll be able to carry out, as you’ll have to borrow more against large home improvements. Take this into consideration before planning wholesale changes and work out what amount your home improvements will end up costing you.
Extensions
Planning an extension, like an extra bedroom, to your home can be quite expensive, so you should carefully consider the extra cost and what it will mean to your mortgage repayments after remortgaging. In addition, you will incur extra expenses to obtain the planning permissions.
Loft or Basement Conversions
Basement and loft conversions are affordable ways of adding extra rooms to a home, as they’re generally cheaper to carry out than extending your home through construction.
When you convert an attic, loft or basement, you can also improve the market value of your property, so by covering the cost yourself and only remortgaging once the conversion is complete will mean you can perceivably release equity and decrease your interest rates.
Renovations
Renovating a property can vary considerably, whether you’re planning a fresh coat of outside paint or rebuilding your entire kitchen. For example, a refurbishment encompassing your full interior will be costly, and you should ensure you obtain all of your professional quotations and other necessary documentation from artisans.
From this documentation, you can factor in all the necessary predicted expenses to calculate how much you will need to include in remortgaging.
Timing Your Remortgaging
Most homeowners will need to remortgage before starting home improvements to cover the costs of the upcoming work.
If you’ve been able to save enough money to cover these costs without remortgaging, it will put you in an advantageous position. With your home improvements already complete, you will receive more favourable mortgage interest rates due to increasing your home’s value.
Remortgaging to fund home improvements is sometimes not your best option, as you may have to withdraw from your current mortgage deal before its expiry. Doing this means you could end up paying early-repayment charges of up to 5% of any outstanding balance.
Another option is to speak with your existing lender about a top-up mortgage, an entirely separate mortgage for which you could receive a different interest rate.
Calculating Your Home Improvement Cost
It’s important to calculate the costs involved for your home improvement before you apply for a remortgage. Depending on what you’re looking to undertake, there are several costs to take into account, including:-
- Any planning permissions
- Architecture and draughting
- Artisans and building contractors
- Building materials
- Additional unplanned and emergency expenses
When you’ve calculated your anticipated total cost, add a nominal amount, perhaps a further 20%, in case something you haven’t considered comes up. It would be best to determine a reasonably accurate figure you’ll need to cover with your remortgage. This figure will indicate the amount you’ll need from your remortgage and assess its viability.
Remortgage for Home Improvements: Benefits and Disadvantages
There are pros and cons to remortgaging for home improvements, and it’s imperative to consider both before deciding whether to apply or not:-
Benefits
- There are a large number of lender choices and options
- Interest rates for remortgaging are still lower than those for many other borrowing options
- Long-term fixed monthly repayments mean you don’t have to concern yourself with drastic increases and fluctuations.
Disadvantages
- Remortgaging before the expiry of your current mortgage makes you liable for an early repayment charge.
- Home improvement costs repaid over an entire mortgage term will result in paying more interest in the long term.
- A remortgage will potentially result in legal, valuation, and mortgage arrangement fees.
- You’ll go through a long and detailed application procedure, including an exhaustive evaluation of your entire financial status.
Other Borrowing Options for Home Improvements
Should you decide against remortgaging to carry out your renovations, various other options are still available to you:-
Secured loan
If you have had recent credit problems or changed your employment, you might have a better chance of getting a secured loan than remortgaging. Generally, providers of these loans are more lenient, as they advance lesser monies. Considering a secured loan could be a solution if you have a current mortgage deal and don’t want to face early repayment charges.
Personal loan
A personal loan specifically for home improvement doesn’t require your home as security. Although its interest rates aren’t as favourable as mortgage loan interest, and loan periods are shorter with lesser available amounts, the application will take far less time to process, and you’ll be able to start your home improvements sooner.
Lenders normally cap personal loans at £25,000, and repayment periods are a maximum of five years.
Top-up or Second Mortgage
Your lender, or another, may consider granting you a top-up mortgage if you already have a long-term fixed-rate mortgage and don’t want a remortgage application to hold up your improvements. A second mortgage is also an option, but you will pay a higher interest rate if you choose this option.
Credit card facility
You might own a 0% credit card, which allows you to repay any borrowings interest-free over a stipulated period, which can work out cheaper than any other loan options provided you have the credit facility to cover your additions or renovations.
Savings
Of course, you can always invest your savings into repairing or upgrading your home. Savings accounts don’t have the most significant interest rates, so you might benefit by using your savings this way. However, ideally, you’d want to be left with some money for any unforeseen emergencies.
FAQs
Can I remortgage for a new kitchen?
It’s entirely possible for you to remortgage to help fund any household improvement you can make, but you need to have the required equity in your property to make this a reality. Lenders will need you to qualify for the affordability of remortgaging your property, as it will likely mean an increase in your monthly repayments.
How do you release equity to build an extension?
To release equity in order to renovate, you will have to borrow against some already-available equity, which may mean taking out credit by securing the credit agreement with your equity. Several credit options are available when borrowing against your equity, including the remortgage option.
Seeking Expert Advice
If you are serious about investigating remortgaging to improve your home, we highly recommend you seek prior expert professional advice. Remember that you’re looking to release equity from your property, which is a huge step.
At Loan Corp, we offer a range of commercial and domestic loans, from buy-to-let finance to bridging loans, land purchasing and mortgages. Our brokers have decades of financial experience and will offer you the advice you need to make informed decisions that are best for you, so contact us before making your next move.