Remortgaging for Home Improvements

What is a home improvement mortgage?

A home improvement mortgage is a term used when a homeowner releases equity in their property to borrow more money on top of their existing mortgage to pay for renovations. 

There are lots of reasons why someone would want to renovate their home, and most mortgage lenders would willingly help you raise the money for such as: 

• A new bathroom or kitchen

• A property extension

• Garden renovations

• Loft or basement conversion

Making significant changes to your home can be very expensive, and not everyone can afford the cost of the renovation work out of their savings. 

Using the equity available in your property has become a common way of raising the finance needed to cover the cost of the improvements you want to make. The added value should offset the amount you borrow to your home once this work has been completed. 

Can you remortgage for home improvements?

Yes, it’s possible. Remortgaging offers the perfect opportunity to find a more competitive interest-rate deal with a new lender while releasing some of your property's equity to pay for home improvements. 

It’s a particularly popular method for raising finance if the cost of the renovations is expected to be quite high, as most of the alternative options—a home improvement loan, for example—come with lower maximum loan amounts (up to £25,000) and shorter terms (up to 5 years). 

How does it work?

Let’s say, for example, you’ve decided to install a new kitchen in your home and renovate your garden at the same time, with a total cost for this work of £30,000. The current balance on your existing mortgage is £100,000, and the value of your home is £250,000. 

You could apply for a remortgage with a new mortgage lender for £130,000, transfer the current balance, and use the £30,000 to carry out the renovations.   

Is borrowing extra on your mortgage for renovations a good idea?

If there’s plenty of equity in your home and you can comfortably afford the new mortgage repayments, remortgaging for home improvements has several advantages, such as:

Benefits

• The renovation work could add more value to your property, meaning your overall loan-to-value ratio (LTV) hasn’t been significantly impacted by the extra borrowing

• You can spread the cost of your new mortgage repayments over a longer term, making them more affordable

• Just one monthly repayment for both your original mortgage and the renovations lump sum makes it easier to budget and manage your monthly outgoings

• Lots of mortgage lenders can help, leaving you with plenty of choice and opportunity to access the most competitive interest rates

However, some potential downsides need to be taken into consideration: 

Downsides

• Despite mortgage rates generally being lower than other alternative forms of lending, the longer terms involved usually mean you’ll end up paying back more in interest overall

• Borrowing more on your mortgage means your overall equity will reduce, and your loan-to-value will increase (at least until the renovation work is completed). 

• Your home could be at risk of repossession if you fall behind with your mortgage repayments 

• Your remortgage could come with additional fees, particularly if you want to borrow more for home improvements before your current mortgage deal has expired

How much can you borrow to remortgage for home improvements? 

This will vary from lender to lender. Some mortgage lenders, such as West Bromwich Building Society and Kent Reliance, will accept remortgages for home improvements with an overall loan-to-value (LTV) of up to 95%, including your existing mortgage plus the money needed for renovations. 

The amount you’ll be able to borrow will depend on the overall strength of your remortgage application, particularly the equity available in your property versus the cost of the renovations, the mortgage lender’s affordability assessment and your credit history. 

In addition, there are several other important factors to consider before you apply:   

• How much do you need to borrow? It’s wise to have a clear budget in mind and stick to it as best you can; otherwise, costs for the renovation work can soon spiral out of control. It’s recommended to get at least three quotes for the renovation work to be sure of how much it will cost before applying for additional borrowing

• Is planning permission required? Most single-story extensions don’t require planning permission, but if the scale of the renovation work you’re planning is more extensive, you should check with your local authority before applying for your remortgage

• Check your credit score. Remortgaging for home improvements will involve lenders conducting a hard credit search. It’s wise to download your Credit Report in advance to make sure there’s no information registered that could jeopardise your chances of securing the borrowing you need

If all the factors and criteria outlined above seem daunting, don’t worry! This is where we can help. 

Our Mortgage Experts have all the relevant experience and have arranged countless remortgages for people with similar requirements. They’ll be able to identify the right mortgage lenders and guide you through the application process from start to finish. 

All you need to do is make an enquiry, and we’ll contact you to get started. 

Home improvement loan or remortgage?

A home improvement loan is similar to a standard personal loan. It can be a viable alternative to remortgaging, mainly if the renovation cost is relatively low (less than £25,000). As with other personal loans, the money can be arranged and paid into your account within days. 

They’re also available over shorter terms (up to 5 years), meaning the overall interest you pay back could be lower than for a remortgage. However, this also means the repayments could be higher with a home improvement loan, which could place more of a strain on your monthly outgoings.  

Home improvement loans are not usually secured against the property, and whilst the intention is to use the funds for home renovations, once the loan is approved, you can use the money for whatever purpose you wish. 

Other alternatives

Remortgaging might not always be the best way to borrow money for home improvements. In addition to a personal loan, there are other alternatives: 

• Second Charge Mortgage**. Also known as a secured loan (as it's secured against your property) and would be a useful option if you can’t break the terms of your existing mortgage deal without paying a hefty fee to remortgage.

• Personal loan. If the cost of the home improvements are relatively low (less than £10,000-£15,000) you could consider taking out a personal loan over a shorter term. The repayments may be higher as the maximum term is usually 5 years, but you’ll pay back less interest overall.

• Cash savings. If you have sufficient cash reserves to cover the renovation costs, this would avoid any interest charges or remortgage fees. 

**This service is offered by referral to a third party. 

Can you remortgage for home improvements with bad credit?

If you’ve had bad credit since applying for your original mortgage, borrowing money for home improvements could be a bit more complicated, but it is possible. This will depend on how much the bad credit has affected your credit score, when it happened, and the amount involved. 

Several mortgage lenders (all of which have strong working relationships with us) specialise in helping people with bad credit and assess applications case-by-case. You may have to pay a slightly higher interest rate and accept a lower loan-to-value (LTV). However, this may be worthwhile in the long run if you can raise enough funding for the home improvements you want to complete.