Last reviewed on 31st October 2023 by Martin Alexander (Mortgage Advisor)
Remortgaging for home improvements is a profitable way to use your equity. You’d not only benefit from giving your home an upgrade, but the value of your home is likely to increase. While you can remortgage, there are other options to consider, which we’ll cover in this guide.
Can I remortgage to pay for home improvements?
Although you can remortgage to pay for home improvements, your mortgage will increase. Lenders typically have no issues with borrowing for home improvements, as it can increase the value of your home. You’ll need equity to remortgage and prove to a lender that you can afford to repay the amount you want to borrow.
For instance, if your current mortgage is £100,000 and you need £20,000 for a new kitchen, you’d take a new mortgage for £120,000. The £20,000 can be spent on a new kitchen, but you’ll need to repay the loan with interest.
You’ll have to stay within 80%-90% LTV (loan-to-value), leaving 10%-20% equity in your home. Lenders won’t allow you to remortgage for 100% of your home’s value.
What are my options for funding home improvements?
Although a remortgage remains a popular choice for funding home improvements, there are several other options, such as:
A further advance
If you don’t want to remortgage, you could borrow more from your current lender. This is called a further advance and works like a top-up to your existing mortgage.
Borrowing more with your existing lender can be an ideal alternative to remortgaging. For instance, you can retain your current mortgage and borrow more without paying high-interest rates.
A second mortgage
You could take a second mortgage out with another lender. However, interest rates will be higher than if you were remortgaging, so meeting affordability isn’t as easy.
Your current lender must also consent to add another mortgage lender to your property, which can be an issue if your lender refuses.
Home improvement loan
You could take a personal loan that’s not secured against your home. Rates will be higher than a mortgage, and you’re limited on how much you can borrow. Home improvement loans are typically capped at £30,000, so you must stay within budget.
Applications are processed faster than mortgages, and if you want to keep your current deal, a home improvement loan is a viable alternative.
Low-interest credit cards
Some credit cards allow you to borrow at 0% for 1-2 years. That said, you’ll need to repay the entire amount in this timeframe.
Although borrowing from a 0% credit card can be cheaper than a remortgage, it’s risky. The rates will be expensive if you fail to repay within the given timeframe.
Using your savings is obviously much cheaper than repaying interest on a loan. However, spending all your savings on improving your home can be risky, especially if you’re financially stretched.
You’ll want a savings fund for financial emergencies, and remortgaging can help you with cash flow. Spending your savings on home improvements is only recommended if you’ll have capital once the renovations are complete.
As some options are high-risk, speak to a mortgage advisor before deciding what to do.
Factors to consider before remortgaging for home improvements
Before you decide on how to fund your home renovation, there are some factors to consider:
- Your mortgage will increase – As you borrow more, your mortgage payments will increase. Consider the additional cost you’re taking on and whether renovating your home is worth doing.
- Early repayment charges – Check that you’re not tied into your current deal. If you are, you’ll need to pay an early repayment charge (ERC), which can be costly. If you are liable to pay an ERC, a further advance from your lender may be the next best option.
- Do you have enough equity? – Check whether you have enough equity in your home for the amount you want to borrow. You can get a valuation to determine the current value of your home to work out how much equity you have.
- Meeting your lender’s criteria – When you remortgage, your new lender will check whether you meet their criteria and the affordability of the mortgage. It can help to speak with a mortgage advisor to check your eligibility before applying. For instance, if you have bad credit and need to remortgage, we can check which lenders you’re eligible for.
- Reasons for renovating your home – If your only aim is to add value to your home, you’ll need to be sure that the value of your property will increase. Remortgaging involves taking on more debt, so it is a risk if you’re unsure whether it will improve your home’s value.
Should I remortgage before or after home renovations?
You must remortgage beforehand if you need capital to carry out home improvements. On the other hand, if you can afford to fund the renovations, remortgaging afterward can be beneficial.
Remortgaging once your renovations are complete can allow you to get better rates and take more equity from your home. If your home increases in value, you’ll have more equity, giving you access to better deals.
Which option should I choose?
There are many reasons to remortgage, and doing so for home improvements can be an intelligent choice. It all depends on your current deal and the total cost of the renovation. If you’re already on a great mortgage deal, a further advance from your current lender may be a better option.
You should have ample equity if you’ve owned your home for several years, and the value has increased since you purchased it. Whether a remortgage is the right option depends mainly on your circumstances. As with any mortgage, an assessment is based on your criteria, and remortgages are no different.
Consider all your options and shop around to ensure you’re getting the best deal. You may decide to remortgage and use the funds to buy another property. This is also a clever way to utilise the equity you have.
Learn more: How to remortgage to buy another property
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.