Remortgage for Home Improvements

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Remortgaging for Home Improvements – what to consider

Funding home improvements is perhaps the most popular reason to remortgage for additional borrowing. But how does this work and what do you need to consider?

How does remortgaging for home improvements work?

Remortgaging is the process of switching your mortgage deal. It involves exploring lenders and products and applying for a new loan.

When you remortgage for home improvements, you increase your mortgage borrowing. This basically involves equity release from your property – so you need to have reduced the overall debt on your home.

For example, your home is worth £400,000 and your current mortgage is for £250,000. You may be able to extend your mortgage to £300,000, releasing £50,000 to pay for home improvements such as an extension, a loft conversion or other renovations.

Is it a good idea to remortgage for home improvements?

Provided you plan and budget carefully, it can be a very good idea. An extension, conversion or other renovations can add value to your home that ultimately covers the cost of the building work.

Changing your home to suit you and your family better is also an excellent idea, particularly if you’re planning to stay in the property for the long term.

What do you need to have to remortgage for home improvements?

The main thing you will need is equity in your property. Lenders won’t let you exceed a certain Loan to Value (LTV) on your mortgage – this LTV is often 90%.

If your home is worth £200,000 and you want to release £20,000 (10%) for a home improvement project, you will need at least a gap of at least another 10% between the size of your mortgage and the property value. So you’ll need to have reduced your mortgage to a maximum of £160,000 at the start of your remortgage.

You can then borrow £180,000 – covering the mortgage and your home improvements, with a mortgage at 90% loan to value. Talk to a broker to explore how this would work in your specific situation.

A further consideration is where you are with your current mortgage deal. If you’re locked into a fixed rate deal, there may be an early repayment charge to pay. This can be a large amount of money – so check the terms of your mortgage before you make any decisions.

What factors will be taken into consideration when remortgaging for home improvements?

Lenders will want to check a number of things as part of approving you for a remortgage. These include:

  • Affordability – whether you can comfortably afford the increased mortgage payments based on your income and outgoings
  • Cost of home improvements – what exactly you will be funding and whether you have budgeted correctly
  • Credit history – your credit record and whether you have fallen into debt in the past six years
  • Equity – how much your property is worth in relation to the size of the mortgage you want
  • Financial circumstances – that you have a regular income and no financial problems
  • Type of property – how your home is constructed. Some lenders will not lend on a property that is of ‘non-standard construction.’

How much can you remortgage for home improvements?

The amount you can borrow will depend on the amount of equity in your property and your affordability.

As soon as you start thinking about a remortgage to fund home improvements, have a chat with a broker. We can look at your circumstances and guide you on how much you could borrow, what the work is likely to cost and what effect that would have on your mortgage payments.

We can give you the whole picture of what your plans will cost – with no fee or obligation.

Are there any alternatives to remortgaging for home improvements?

The most cost effective alternative to remortgaging is to save up the funds in advance. You can also explore personal loans or other sources of finance.

The advantage of remortgaging is that the interest rates are usually much lower and you may not notice a big change to your monthly mortgage repayments.

The disadvantage is that any mortgage is a secured loan, where the borrowing is secured against your home – so if you fall behind with repayments, your property is at risk.

The home improvement company quoting the job has offered me their finance package, is this a good idea?

Some building companies are now offering finance where you can pay for the work in instalments. This should be explored very carefully – we can advise on whether it is a good option.

It’s unlikely that the interest rates will be as favourable as a remortgage, and you will need to check whether there are any other hidden fees or costs. You should also ask about your rights and consumer protection.

How can a Mortgage Broker Help?

We’re here to help you explore all the options: from deciding whether home improvements are a good idea to looking at how you could finance your project.

We’ll look at your specific situation and your remortgage options, comparing hundreds of products and mortgage rates to get you a great value deal.

Mortgage Advice Centre is a trade name of Carter Thompson & Associates Limited, which is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority. We work with both first time buyers and people with existing mortgage products to explore the right options for any mortgage situation. Contact us today for an initial chat about how we can help.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage

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