Remortgage to Pay for Home Improvements

If you either currently have a mortgage and have had one for some time, or you own a home outright, then it’s likely that the thought of remortgaging has crossed your mind. To put it briefly, remortgaging is where you take out another, or a different kind of loan, on your existing property.

If you’re living quite comfortably, it’s natural to wonder as to why you’d want to take out a further loan. However, remortgaging is actually very common because it poses an ideal way for people to get a better deal with more favourable rates. Moreover, if you’ve got a sizable amount of equity tied to your house, remortgaging allows you to release this figure so that you end up with a versatile lump cash sum. Or, you could just borrow more. Evidently, this opens up a wealth of opportunity, one of the primary options being to develop and so upgrade your property. This specific process is known as a remortgage to pay for home improvements.

Before you settle on a decision, it’s clear that remortgaging requires a thorough assessment of your personal finances and individual situation so that you know what you’re doing is right. This can be a complex conclusion to come to, with even more complexity being involved when you do. It’s for this reason why we highly recommend hiring an expert mortgage broker to help guide you through every step of the way. Here at The Mortgage Genie we have assisted many of our UK clients by securing a remortgage to pay for home improvements for them. If you’re interested in joining those among our success stories then be sure to give us a call at 01915809890 today.

Yet still, despite what our services can do for you, there’s a lot to know when it comes to remortgaging to pay for home improvements. So that you can properly inform yourself on the topic, we’ve put together this piece which goes over all the important details that you need to grasp. We will cover:

Can you remortgage to pay for home improvements?

The short answer to this question is yes. It is entirely possible to remortgage to pay for home improvements. In fact, a great deal of homeowners choose to remortgage in order to fund renovations for their property. This is because, when a mortgage term ends, you will automatically be placed on your lender’s standard variable rate (SVR). This entails relatively high interest rates, so an obvious option is to either negotiate a new deal, or switch to a different lender. If this coincides with needing or wanting home improvements, then the benefits are clear. I.e., you get a more competitive deal while being afforded an opportunity to increase the value of your house.

To give an example of how this works, let’s say that you have a mortgage of £150,000, your mortgage term is coming to an end, and you want to make some improvements such as adding a conservatory or having a new kitchen fitted. The latter may cost you around £15,000, an amount of spare cash which not everyone has lying around. You can circumvent such financial limitations by applying for additional borrowing, namely, adding the cost of a certain renovation on top of your initial mortgage value. In this context, this would mean taking out a mortgage loan of £165,000 so that you could pay off your old mortgage. The extra £15,000 would come in the form of a lump cash sum and you’d begin to make the accordingly adjusted monthly repayments for the duration of your new mortgage term.

Am I eligible to remortgage to pay for home improvements?

Whether you’re eligible for a remortgage to pay for home improvements is dependent upon an array of factors. Foremostly, lenders want to be assured that you’ll easily be able to keep up with your new monthly repayments. This implies an affordability check, where lenders will judge your expenditure against your income. Each lender has a different set of criteria which they measure people against. Yet, as a general rule, mortgage providers are willing to offer up to four times of a household’s salary. So, if you are earning £50,000 a year, then you would have a maximum loan amount of £200,000.

Alongside an affordability check, lenders will also carry out a deep inspection of both your personal and financial profile. This necessitates them taking a look at your credit score to view any indications of poor money management, as well as whether you’ve ever had a court county judgement (CCJ), an IVA, adverse credit, or if you’ve filed for bankruptcy or failed to meet payday loans in the past. All of these listed instances here have an independent impact upon your overall eligibility, but if they occurred more than six years ago then the severity might be lessened. Additionally, as mentioned, if you have amassed a considerable amount of equity in your property, and your house is now worth more, then these facets will increase the likelihood of lenders permitting your remortgage for home improvements.

If you want to get an idea of your current financial suitability before you apply, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you spot potential mistakes and fraudulent activity so that you can address any problems without delay. The trial and subscription can be cancelled at any time.

Types of home improvements that you can remortgage for

On the back of the last point, lenders will also want to be made aware of what exactly you’re going to be using your lump sum for, namely, what type of home improvement. Naturally, it’s vital that you come to an applicable decision as soon as possible. Thereafter, this allows you to get quotes from contractors while being able to take any additional costs into account so that you rule out overstepping the mark.

Types of permissible home improvements include things such as extensions, loft conversions, and varying degrees of renovations. A loft conversion will usually run you the cheapest of the three at around £15,000 at most. This is far from an unreasonable ask and means that you create an extra living space within your property, all while maintaining a low-interest rate. On the other hand, an extension may cost upwards of double the previous amount, making a remortgage for additional funds almost a requirement in a lot of cases here. Middling the spectrum, expenditure for property renovations will vary from home to home, the crux is ensuring that your home is habitable. So, if your roof is unsealed or there are non-functioning aspects of your kitchen or bathroom, then a renovation will be adequately warranted.

It’s advised that you make any minor repairs before a prospective valuation is carried out. If you don’t, and your lender sees this is a problem, then they are within their right to withhold the funds before the issue is fixed. This could concern electrics and plumbing problems, for example. At any rate, the more money you invest into your property, the bigger the returns will be.

Should I remortgage before I pay for home improvements or after?

Despite paying for home improvements after your remortgage gets approved being the most straightforward conclusion to come to, there is also the option of paying for the improvements beforehand. The feasibility of this will be determined by the scale of the improvements or renovations you want to implement. The case might be that mortgage rates are rather high and you could secure better rates by getting a secured loan which uses your property as a guarantee. The viability and cost-effectiveness of either all depends on what the current climate is.

It’s significant to bear in mind, however, that if you were to fail to keep up with your repayments for a secured loan, then this opens up the potential for your home to be repossessed. Likewise, if you were to use a credit card to pay for home improvements, and your approach isn’t shrewd, then it becomes very easy for you to fall into debt.

It is essential for you to weigh up the risks, we stress that a mortgage broker can help you in appropriately doing so. Having said all of this, if you paid for home improvements before remortgaging, the consequence is that the added value to your property will increase your equity and so make releasing it more favourable. This is especially the case if your home has exponentially grown in value since you initially purchased it. Moreover, your monthly repayments would be lower if you were to opt for a relatively low loan-to-value (LTV) ratio mortgage.

Is it cheaper to remortgage to fund home improvements?

Instead of opting for remortgaging to finance your home improvements, you might consider obtaining an unsecured personal loan or simply using your credit card. The decision between the two depends on the LTV ratio of your remortgage, as it could result in a lower interest rate compared to personal loans and credit cards, which often carry higher rates. Remortgaging offers the advantage of a more extended repayment period, spanning the entire mortgage duration, unlike the constrained time frame associated with personal loans in particular. However, this extended period may lead to higher overall interest payments, potentially resulting in a long-term financial drawback.

Should I increase my existing mortgage to fund renovations?

Expanding your existing mortgage is another viable avenue for financing home renovations. This entails approaching your lender to inquire about the possibility of borrowing additional funds. This strategy proves especially astute when your current mortgage deal boasts favorable interest rates, and you are satisfied with the service provided by your lender. Additionally, if potential early repayment charges (ERCs) pose a deterrent to exiting your current mortgage agreement early, the advantages of enhancing your home through remortgaging may outweigh the financial implications associated with ERCs.

Take out a second mortgage to pay for home improvements

If you find your income to be substantial and consistent enough, another alternative is to retain your current mortgage while acquiring a second one, commonly referred to as a second charge mortgage. These arrangements necessitate simultaneous repayments on both mortgages, typically spanning several years and effectively amplifying the borrowed amount secured against your property. It is imperative to assess your financial stability carefully, given the potential for significantly higher interest rates associated with this option. Once again, the extent of your borrowing capacity hinges on the equity you possess.

Should I release equity for home improvements?

Homeowners aged 55 and above have the option to finance home renovations through equity release, a process often termed as a remortgage to release equity. This enables you to unlock a portion of your home's value in the form of a tax-free lump sum. Repayments are not mandated until the last remaining homeowner on the deeds enters into care or passes away. However, it's important to note that this approach may affect the amount of inheritance you can ultimately leave behind.

What should I consider before a remortgage to fund home improvements?

The first thing you want to extensively consider before remortgaging to fund home improvements is whether or not you can afford it. Although it’s unlikely you’d be accepted for a remortgage if you couldn’t, there is a lot to take into account. Namely, you’ll owe more on your mortgage for a long period of time, a remortgage to fund home improvements isn’t a short-term deal. You need to ensure that you’re comfortable with paying more well into the future; by the same token, that you’d be able to keep on top of repayments if the unexpected happened, such as a wage cut or job loss within the household.

In a similar vein, there are always fees and charges that come with a mortgage that should be incorporated in the planning of your finances. On top of this, if you are currently locked into a long-term fix, then there will be a notable ERC which could put a strain on your wallet. To reiterate a pertinent point, the best time to remortgage is usually at the end of your deal’s term. Lastly, you should make sure that you’re renovating for the right reasons, you should be adding permanent value to your property by making an improvement which is guaranteed to hold its relevance. At the end of the day, the best solution for you is governed by your personal situation and financial circumstances, and it’s up to you & your mortgage broker to ascertain this.

Here at The Mortgage Genie we have a comprehensive understanding on how to get a mortgage and are committed to helping people secure loans of all types. We hope that this article has cleared up any ambiguities and answered your questions surrounding a remortgage to pay for home improvements.

Every day we aid a growing number of people in finding housing happiness by assisting them to get their ideal mortgage product and guiding them through each step of the way. If you’re in need of a team of expert mortgage brokers, then you’re in good hands. Contact us at 01915809890 today and we’ll set you on the journey towards getting those dream property improvements! And why not see how much you could borrow up to today by using our mortgage calculator?

Company Information

The Mortgage Genie Limited is Registered in England and Wales with Company Number 9803176. The Mortgage Genie Limited is an Appointed Representative of PRIMIS Mortgage Network, a trading name of First Complete Ltd. First Complete Ltd is authorised and regulated by the Financial Conduct Authority. Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority.

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