Should I remortgage to pay for home renovations?

We Brits love a home renovation, and during the pandemic more of us took on projects than ever before.  When you consider the uncertainty of the housing market and the cost of moving it’s no wonder that home renovations continue to be a popular alternative to buying a property.

But renovations inevitably cost money.  According to Checkatrade, the average cost of renovating a 3-bed house is between £82,900 – £164,300 ¹.  So, what is the best way to pay for improvements to your home?

You can find out more about remortgaging and how we can help on our website

Is remortgaging the best way to finance a renovation?

Remortgaging to release equity (which is sometimes referred to as Capital Raising) can be an excellent way to finance a renovation especially if the following applies to you:

• The renovations are likely to add significant value to your property – loft conversions, off street parking and new kitchens are often considered to be beneficial to value, but it will depend on your local area and market.
• You are coming to the end of your current mortgage term which may save you from incurring early repayment charges.
• You already have a good level of equity in your property.

The short-term gains of raising capital in this way are often enticing, but it is important to balance this with the longer-term financial implications.  You will essentially be increasing the amount you owe on your home and will end up paying more interest, giving a higher payment each month or, paying over a longer period (or both).

Things to bear in mind if you choose to remortgage for home improvements.

If, on balance, you think that remortgaging with capital raising is the right decision, then try to bear the following in mind as you progress with your renovation:

1. Be cautious when estimating the cost of your renovation and ensure you add a percentage for unforeseen circumstances.
2. Account for the extra interest you will pay when you do your calculations.
3. Try to keep to your budget!
4. Ensure your renovation is signed off by any relevant regulators.

Remortgaging isn’t always the best option.

Remortgaging to renovate could be a more costly route in the long run, so if the following applies to you then you might want to consider alternatives:

• Your renovation is likely to devalue the property – some examples of this might be making adaptations to your home such as ramps or handrails.
• Your renovation is unlikely to increase the value of the property – even a neutral effect on the value of your property can mean that there is no long-term financial benefit of making the changes.
• You can incur a hefty charge – for leaving your current mortgage if you are on a fixed rate, (although if this is the case, there are some alternatives called a “further advance” or “second charge” which are outlined below).

What are the alternative ways to use a mortgage?

If remortgaging isn’t the right approach, then there are other mortgage options you could consider:

• Borrow more with your current mortgage – sometimes lenders are willing to extend the amount they will lend. You may hear this referred to as a “further advance”.  This will depend on how much of your existing mortgage you’ve already paid off.  You may also need to pay a different interest rate on the extra money you are borrowing.
• Take out a second mortgage with a different lender – this is also referred to as a second charge. It involves keeping your existing mortgage (first charge) and then going to another lender to give you the funds for the capital you need.
• Equity Release – if you haven’t got an existing mortgage, are over 55 and traditional mortgages/loans/etc, don’t make sense then you could also consider a lifetime mortgage with equity release.

It’s important to speak to a qualified mortgage broker about these options to understand all the considerations.

How can you fund a renovation without using your mortgage?

If you decide that using your mortgage isn’t the right approach, then there are still options to consider:

• Personal loan – just be sure to check the interest rate!
• Credit Card – this has the added benefit of protecting you via section 75 of the Consumer Credit Act 1974 if something goes wrong.
• Savings
• Finance deals – some suppliers (e.g. new kitchens or bathrooms) offer finance deals on their products. Depending on the interest rates that are charged, these can be a cost-effective way of paying without needing a lump sum upfront.

Speak to a mortgage broker

This short blog can only scratch the surface of the topic, so it pays to speak to a qualified mortgage broker.  Here at Downton Mortgages & Financial Services we have helped many customers finance renovation projects by further advance, remortgaging and Equity Release.  Get in touch and we can arrange a no obligation 30-minute chat about your renovation project and what the best option might be for you.

Is it worth using a mortgage broker?

The important legal bits…

16th May – The information contained within was correct at the time of publication (May 2024) but is subject to change.

Please note for all mortgage products, terms and conditions apply. This information is a summary only. You will receive full documentation upon application which sets out the terms, conditions and limitations of lending provided.

A Lifetime Mortgage will reduce the value of your estate and may affect your entitlement to means-tested benefits and tax status. The impact of not servicing monthly interest payments on a Lifetime Mortgage is that the outstanding debt can grow rapidly, thus reducing the value of your estate.

 For example, if the interest rate was 7% a year, a £50,000 loan would double to £100,000 after 10 years assuming no repayments are made.

 This is an example for illustrative purposes only and personalised advice and recommendations should be sought from a qualified professional. You are strongly advised to register a lasting power of attorney. This will allow your affairs to be managed by somebody else if your mental abilities significantly decline.

Second charge mortgages are referred to a third party. Neither Downton Mortgages and Financial Services Ltd nor PRIMIS are responsible for the service received.

 YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Sources

¹ https://www.checkatrade.com/blog/cost-guides/cost-renovating-house/