Most homeowners will, at some stage, want to spend money on their property, whether for a general redecoration project or a full-scale conversion.
Remortgaging is usually one of the most cost-effective ways to borrow the finances required to renovate or refresh your home because the interest rates you pay on a mortgage are significantly lower than on a short-term loan product or credit card.
You might also opt to remortgage for another purpose – such as finding a more competitive rate or switching products when a fixed-term mortgage ends. You can decide to borrow a little more against your equity to cover home improvement costs.
Today, Think Plutus explains how a remortgage works and why you might choose a remortgage if you would like to improve your property or extend your living space.
Remortgaging to Finance Home Improvement Work
Applying for a remortgage to cover work costs on your home is commonplace.
Provided you have enough equity to justify the additional amount you would like to borrow; you should be able to do so.
Lenders will run through the usual affordability assessments to check you can afford the (potentially) higher repayments, but they will be perfectly comfortable with the purpose of the loan.
Essentially, a mortgage lender wants your property to be worth as much as possible!
Your debt is secured against the home, so investing money into improvements will naturally improve the market value and, therefore, the level of risk protection the lender has.
Our advice is to ensure you have a solid overview of the total project costs and add a small contingency budget, so you do not get stuck with an unfinished home improvement task without the finances to cover any expected extra costs.
What Are the Benefits of Remortgaging to Pay for Home Improvements?
It is almost always cheaper to renovate your existing residence rather than selling up and moving home to a larger property.
Moving involves legal fees, estate agent charges, physical removal costs, Stamp Duty and countless other expenses that are not required for a remortgage (or are considerably lower).
You might wish to remain with your current lender and negotiate remortgage terms to move onto a different product or switch your loan to a new fixed-term deal.
More often, you will apply to a new lender and use the remortgage capital to repay the original loan, leaving the balance in your account to spend on your improvement work.
The other typical option is to choose a personal loan – secured or unsecured.
Loans can be suitable if you need to borrow a relatively small value and expect to pay the debt back within a shorter time frame.
If the loan is secured, it will normally mean you can borrow more because the lender will use your property as collateral in the same way as a mortgage lender.
However, for most homeowners, a remortgage is easier to balance than taking out multiple loans, costs less in interest fees and arrangement costs, and can have a longer-term to reduce your monthly outgoings if you wish.
Costs to Include in Your Home Improvement Remortgage Calculations
The key is to make sure however much you apply for is sufficient to cover every aspect of your home improvement work – or the balance you need help to finance.
A remortgage lender may ask for a breakdown of the costs and perhaps written quotations, technical drawings or proof of planning permission, depending on your equity and whether they perceive any risk.
Examples of the costs to include are:
- Architect fees
- Structural surveyor fees
- Contractor charges
- Material purchase expenses
- Buildings Regulations inspections
- Planning permission
- Contingency funds
- VAT on labour and materials
It is best to have at least three quotes, which you can use to demonstrate sound money management and show that you are not overinvesting in a home improvement project.
As a rule of thumb, you should add a 15% contingency to your budget.
If the project runs behind, you encounter unexpected costs, or you need to expand the scope of the work, you will still be able to move ahead.
How Much Can I Borrow on a Home Improvement Remortgage?
Much depends on what your home is worth, the equity you hold, and the anticipated value when the work is finished.
The latter figure becomes more important when you are borrowing a large amount, as the lender might wish to verify how secure the debt is, compared to the property market value.
For example, if you own a home worth £300,000 and have £200,000 outstanding on your mortgage, you own 30% equity, so you would be in a good position to remortgage and increase your total balance.
However, a lender will not offer 100% of your property value.
Most remortgage providers will go up to 90% Loan to Value as an absolute maximum (commonly closer to 75% – 85%), and they will want to check how much you earn a year to assess whether you fit within their affordability and lending policies.
Salary multiples are used to get a rough idea of your maximum mortgage – but this can vary between lenders and will not be the only factor that impacts your maximum remortgage value.
What Home Improvements Can I Remortgage for?
There are, of course, a considerable number of home improvements you may wish to pay for through a remortgage – from laying a new patio to building an extension or replacing your double glazing.
While the below list is not exhaustive, we have run through some popular home improvement projects you can finance through a remortgage.
Remortgage to Fund a Loft Conversion
Converting a loft space adds a new storey to your property, which you could use for anything such as an additional bedroom, home office or children’s play area.
Even a simple attic conversion typically costs from £20,000 as a minimum, so a remortgage is a cost-effective solution.
If you have the funds in place to pay for a loft conversion, a remortgage may still be an advantageous move.
Because a property is nearly always worth more after an attic conversion, you may be able to remortgage to either pay back the shorter-term financing or achieve a lower mortgage interest rate or monthly repayment.
Remortgage to Renovate a Property
Although a residential mortgage is unsuitable for an uninhabitable property, you can remortgage if your home requires substantial repair or renovation.
It is important to calculate the costs carefully since a larger renovation project often runs into delays or sticking points which inevitably increase the total budget.
A renovation remortgage is also a suitable option if your property is liveable as-is, but you wish to modernise the layout, update old wiring, or refurbish with new plastering, ceilings and flooring.
Our advice is to conduct an independent survey before the work begins. If the mortgage lender identifies a serious structural problem, this may affect the mortgage approval likelihood.
Some lenders will be happy to proceed with a renovation remortgage but withhold a proportion of the lending until the specific issue or problem has been rectified.
Remortgage to Build an Extension
Building a new extension costs from £35,000 and upward, depending on whether you are constructing:
- A wrap-around one-storey extension.
- A full-height two-storey extension.
- A smaller conservatory or home office extension.
- A side return extension (popular with period homes).
Given the cost of an extension, a remortgage is the most common way to pay for the work. Like a loft conversion, you may also wish to consider remortgaging when your extension is complete, and the property market value has risen.
Remortgage lenders may ask for detailed plans, planning consent (where required) and an indicative budget to assure that the work will be carried out with approval and to the required standards.
Factors to Consider Before Applying for a Home Improvement Remortgage
No two lenders are the same, so there are no hard and fast criteria or metrics we can provide that will apply to every lender and remortgage.
There are though several factors to consider before you apply:
- Equity: the proportion of equity you own in your home will be fundamental to calculating how much you can borrow and which lender to apply to. Think of equity as your deposit; the more you have, the more you can borrow.
- Property: standard homes are fairly simple to remortgage, but if you have an unusual property or want to invest in a big project like a barn conversion, you may need to apply to a specialist lender.
- Credit scoring: any remortgage application will involve a credit assessment. Adverse credit issues may affect your maximum mortgage value and the appropriate lenders. There is more advice available on our Bad Credit Mortgages
You will also need to evaluate your mortgage term. The longer the mortgage, the lower your repayments, but the more you will pay back over the lifetime of the debt.
Most lenders will also reject a remortgage if you would be past retirement age at the term end, so this is worth building into your calculations.
What Are the Alternative Ways to Finance Home Improvements?
We have talked about secured loans, but several potential remortgage alternatives exist.
They may be preferable if you do not wish to remortgage or are not eligible for your preferred remortgage product.
The most obvious reason you would select another finance option is that you are in a fixed-term mortgage deal.
In that case, the early settlement charges may make it unviable to remortgage at this point, so if you cannot wait to carry out your home improvements, you might consider a different loan structure.
- Personal loans are unsecured, so they carry much higher interest charges. You can borrow from £25,000 to £50,000 on a personal loan for a refurbishment project.
- Equity release products are available to homeowners over 55. However, there are some caveats you must understand as your property may eventually belong to the lender or be sold when you pass away.
- Bridging loans are a short-term borrowing option used to finance larger-scale improvements or where the property does not qualify for a conventional mortgage.
There are pros and cons to each of these lending options, so we strongly suggest consulting the Think Plutus experts before making any financial decisions.
Independent Advice on Finding the Right Remortgage for Home Improvements
Remortgaging for home improvements is reasonably common. Most mortgage lenders will happily consider a remortgage applicant in this scenario.
As always, there are numerous lenders with varying rates and products that may be suitable, and you will also need to decide whether the cost efficiencies of remortgaging with your current lender outweigh any savings you might make by switching.
The best place to start is by consulting a skilled, independent broker who can run through the options with you and steer your remortgage application down the right path.
Think Plutus is a whole-of-market broker with years of expertise negotiating competitive remortgage rates and helping our clients pick the perfect mortgage products for their borrowing needs.
Please get in touch if you would like further information about remortgaging for home improvements.