Should You Remortgage to Fund Home Improvements?

If you are considering home improvements, you may be wondering which is the best way to fund them. Most home improvements come at a significant cost and for this reason, many people put off the work because they are concerned about financial implications.

The good news is that home improvements can be funded through a mortgage provider and in some cases, this can be advantageous. In other cases, home improvements can be detrimental for a myriad of reasons and this guide details whether you should remortgage to fund home improvements.

Let’s explore all the nuances of home improvements and whether remortgaging could be a passport to a more comfortable living environment.

Is it a Good Idea to Remortgage to Fund Home Improvements?

The answer to this question is it depends on the type of home improvement you are planning to undertake. Some home improvements will add to your overall property value and potentially increase the amount of equity you hold in the property.

When you offset the added value and additional equity, it can often be financially beneficial to remortgage and conduct the home improvements.

For example, if you are planning a two-storey side extension that costs £75,000, providing you have the equity in the property, remortgaging could be beneficial. This is because a typical two-storey extension adds more value to your property due to the added space/additional bedrooms you create.

To estimate the overall value, you can do one of the following:

• Check websites like Zoopla/Rightmove to see how much comparable properties are worth with the additional bedrooms
  
• Speak to a couple of local estate agents and ask for a valuation
• Consult a surveyor (especially useful for major renovation work) to get a more realistic valuation
  

Some home improvements will devalue your property – and these down-valuations can be hefty. Remortgaging for home improvements when the improvement down-values your property is almost always a bad idea unless they are absolutely necessary.

Types of Home Improvements You May be Considering

In general, there are some home improvements that will add to the value of your property.

These are:

• Extensions that add space, additional bedrooms, or bathrooms.
• Renovation work that modernises the property and makes it more energy efficient.
• Converting existing space such as garages into useable house space.

The last factor is sometimes overlooked as people believe having a garage to the side of the property is a selling point. Most garages are designed to historic specifications and built for cars built in the 70s/80s. Modern cars are much bigger, and it is rare to find a modern vehicle that fits comfortably into a garage.

There are home improvements that will devalue your property. These are:

• Installation of mobility rails, ramps, and wet rooms.
• Installation of solar panels in some cases.
• Extensions with a lifespan, for example, some conservatories only have a twenty-year lifespan.

Mobility installations reduce the value of properties because it limits the amount of prospective buyers.

Solar panels are a mixed bag, with some installations improving property value and others not. There are two reasons why; the first is most solar panel installations have a shelf life before the panels need to be replaced. The second is in around half of solar panel installations, the panel company puts a lien on the roof of your property or requests an agreement to lease the roof of your property.

These agreements normally save homeowners money upfront on the cost of the installation but create a nightmare when it comes to selling a property as buyers will not be free of these agreements.

Types of Home Improvements You May Remortgage For

When considering remortgaging for home improvements it really comes down to one question. Will the home improvement reduce the value of your property?

If the answer is yes, it is probably best to source funding elsewhere as such home improvements can reduce the equity in your property.

You should be over-cautious with your budgeting costs for home improvements as well. Most home improvements exceed the anticipated budget and unfinished home improvements will open you up to more financial liability.

Where the home improvement has a clear path to an increased property value and you recoup the cost of the remortgage, you can be more comfortable about remortgaging to fund the work.

What to Consider Before Remortgaging

Remortgaging can initially appear a simple solution to fund your home improvements, especially where there is a large property value gain.

You must be aware you are not only borrowing the capital (actual cost of the improvement), but you are also taking on the interest value of the loan as well.

For example, if your home improvement costs £75,000 and adds £100,000 to the property value, you have on the face of it, a £25,000 profit. However, your realised profit is much less when you consider mortgage fees and interest and may drop to around £20,000 as an example.

This all assumes the work is conducted in budget and finished to a standard that will be signed off by the local authority.

In cases where work overruns on budget or there are problems with bureaucracy, you may find you have no profit remaining and even be at risk of negative equity.

Alternatives to Remortgaging

Some home improvements can be funded without the need for secured finance.

For example, most kitchen and bathroom installations can be financed through the provider’s finance company or by taking an unsecured loan from your bank or building society.

Unsecured finance is preferable in these instances providing the interest rate is broadly comparable to a remortgage. This is because you are limiting your exposure to risk. For example, if you fail to repay your mortgage, you risk losing your home whereas failing to repay unsecured debt while undesirable (due to the impact on your credit file), has a lesser impact on your ability to keep a roof over your head.

You may also prefer to fund the home improvements yourself as this will eliminate most of the risk and avoid the additional cost of interest. For home improvements that may devalue your property, it is almost always better to finance the cost yourself unless you absolutely cannot afford to.

Speak to a Mortgage Broker

Remortgaging for home improvements is a complex area with many hidden pitfalls you may not have considered. You should always consult with a mortgage broker who can explain all the risks and benefits associated with your specific plans.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers provides fee free mortgage advice and arrangement.

Book your initial consultation on your planned home improvements with Boon Brokers today.