How to Finance Home Improvements
If you are intending to carry out home improvements, you may be wondering what options you have to borrow money to complete the works. It can be a frustrating experience trying to source funding for home improvements and you may find it difficult to obtain the money you need.
The great news is there are several ways of funding home improvements and some have very flexible terms. From a typical remortgage to bridging loans (that can help you achieve more complex goals), there are a plethora of financing products to meet most home improvement needs.
Let’s discover these financing options and outline the differences between them.
Benefits of Home Improvements
Home improvements can help you increase the value of your property, make your property more comfortable or repurpose it for disabled access and healthcare needs. A common reason for home improvements that has emerged recently is to make a home more energy efficient.
If you are looking solely to improve the value of your property, bear in mind some home improvements will not increase the value of your property, and some can even decrease a property’s desirability.
You will also need to factor in the cost of the home improvements as you might not be able to recoup this with the anticipated increase in value.
Home improvements that can increase property value are:
- Refurbishing a kitchen
- Bathroom upgrades
- Triple glazing windows
- Home extensions
- Extra bedrooms
Home improvements that can devalue a property are:
- Installation of some solar panels
- Some types of loft conversion
- Home office conversions
- Mobility conversions
Solar Panels and Property
A common misconception is that installing solar panels on your roof will increase the value of the property. Solar panel installation CAN increase property value if you are installing the latest panels and own the panels outright.
Older solar panel installations will have a shorter lifetime and be less efficient making them problematic for buyers who will need to factor in the cost of maintenance and replacement.
Some solar panels are installed on a lease basis and if this is the case, you might find your buyer’s mortgage lender declines the mortgage. This is because a whole portion of the property (roof) is leased to another company.
Lastly, some homeowners who own solar panels outright choose to retain ownership of the panels which will put off buyers who want to use them without charge.
In short, solar panel installation is still a very grey area with property ownership as the panels act as a separate entity to the property in most cases which causes headaches for buyers. Some leaseholder agreements even prohibit the sale of a property where they own panels.
Factors Affecting the Cost of Financing a Home Renovation
As you might have guessed, there are numerous factors associated with home renovations and financing them can be tricky, especially if you are looking to do something unusual.
A general rule of thumb is most home improvements that improve the interior condition such as refitting will be fine to remortgage on.
Any home improvements that change the structure or permanently change the property are likely to be harder to finance.
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Ways to Finance Home Improvements
Here are the ways most people use to finance home improvements and what improvements they suit best.
If you are looking to complete interior decoration improvements and you hold enough equity in your property to cover the cost of the renovation, a simple capital raising remortgage should be your first port of call.
Most lenders will allow you to make home improvements on a remortgage, but you should be prepared to disclose the nature of the improvements to the lender.
Take Out a Second Mortgage
In cases where a remortgage is not available you can take out an additional mortgage in some cases. Once again you will need to ensure you have enough equity in the property to cover the second loan.
Taking out a second mortgage puts a second charge on your property. Because the second mortgage is not the first charge on the property there is additional risk for second mortgage lenders, and you will likely find your interest rate is higher compared to remortgaging.
Secured Homeowner Loan
Secured homeowner loans are similar to second mortgages, and again the lender will put a charge on your property as a security for the money they lend you.
Increase Existing Mortgage
You may in some cases be able to contact your existing mortgage provider and extend you current mortgage. This is helpful if you hold enough equity in your property to cover the extended borrowing but have early repayment charges that make remortgaging unfavourable.
Releasing Equity in your Property
One of the most flexible ways to raise money for home improvements (including problematic ones) is to release equity using a Lifetime Mortgage Equity Release product.
With Equity Release, the lender should allow you to spend the money however you choose for the home improvements.
You will need to be over the age of 55 to release equity and you should be aware that releasing equity can be unfavourable compared to standard mortgage products. This is because comparatively Equity Release products represent worse value for money due to the likelihood of higher interest that can compound.
Bridging loans are fully flexible but also expensive. A common practice recently is to convert unused space on your land to build a new property. This type of home improvement would almost certainly be declined by a traditional lender but can be achieved using a bridging loan.
A bridging loan is a short-term loan that releases funds for you to complete a build and then exit onto a standard mortgage product. It bridges the funding gap between building and having a property you can secure a mortgage against.
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Speak to a Specialist
If you are looking to fund your home improvements or renovation you should speak to a whole of market mortgage broker in the first instance. A whole of market mortgage broker has access to the products mentioned on this list and will be able to source the product that best matches your circumstances.
Ready to start your home renovation? Contact us today to request a free callback and discuss your finance options.