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Remortgage for home improvements


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Remortgage for home improvements

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Last reviewed on 10th March 2022

The pandemic has seen a surge of homeowners renovating their homes rather than buying. This is due to a lack of property for sale and an increase in house prices, as the demand far outweighs the supply. As a result, there’s been a huge increase in homeowners remortgaging to carry out home improvements. In addition to low-interest rates, remortgaging for home renovations can make perfect sense.

Remortgaging can allow you to release equity to spend on improving your home. Doing so can also increase the overall value of your home which you could benefit from if you ever decide to sell.

Should I remortgage to pay for home improvements?

It’s possible to remortgage your home to help fund any improvement you wish to make, but you’ll need to have ample equity in your home. Mortgage lenders will require you to meet the affordability of taking on a new mortgage, as your monthly payments are likely to increase. This is because you’re borrowing more against your home.

If you can afford to repay a higher mortgage amount, remortgaging could be an option. If you’re already on a tight budget, switching deals and borrowing more perhaps isn’t the best choice. That being said, if you can find a better interest rate than your existing deal, you can minimise any increases in cost.

How does remortgaging to release equity work?

Remortgaging to release equity allows you to switch deals and borrow more in the process. You’ll need to meet your new lender’s criteria and also have enough equity for the amount you wish to borrow.

Take a look at this example:

Your home is now valued at £250,000. The outstanding mortgage balance is £150,000. This means you have £100,000 in equity.

You remortgage for £180,000. Your current lender is paid back the remaining £150,000, leaving you with a £30,000 lump sum in addition to a new mortgage balance of £180,000. To summarise, you’ve released £30,000 of equity in your home, but have increased your mortgage from £150,000 to £180,000 with £70,000 equity still in the property. This £30,000 can then be spent on home renovations.

This example doesn’t mean you’d be allowed to withdraw £100,000 for home improvements, as this would equate to a 100% remortgage. Lenders won’t allow borrowers to withdraw 100% of the equity from a remortgage. The majority of lenders will require you to leave at least 10% equity in your home.

Use our remortgage calculator here to check how much you can borrow.

Will I be able to remortgage my home?

There has been an increase in UK homeowners spending more money on home improvements in comparison to moving. An extension may be more cost-effective than moving home, especially if you require more space or your current rate is unbeatable.

If you’ve owned your property for a number of years, the chances are you’ll have equity. If property prices have really increased since you purchased your home, then you should have enough equity to utilise.

Whether a remortgage is a good idea, depends largely on your own circumstances. As with any mortgage, an assessment is based on your personal criteria and remortgages are no different.

What factors do lenders assess?

Although you’ll require equity to remortgage, there are other factors that lenders will also assess. Simply having equity in your home doesn’t guarantee you’ll be able to remortgage your home.

Factors that lenders will assess for a remortgage include:

  • The amount of equity you have
  • Affordability
  • Type of home improvement and estimated costs
  • Credit history
  • Property type

Each lender has a unique assessment and can include additional factors.

What types of home improvements can I remortgage for?

Larger home improvements will result in borrowing more, so it’s likely you’ll require more equity to do so. It’s possible to remortgage for the following home improvements:

  • Remortgage for an extension – Extensions can be costly so you’ll need ample equity and will need to consider the higher cost of a new mortgage, in addition to fees for planning permission where required
  • Remortgage for a loft conversion – Loft conversions are rarely more expensive when compared to extensions and can be a great way of adding an additional room to your home
  • Remortgage for home renovation – Renovating your home can range from a lick of paint to a new bathroom and kitchen, so you’ll want to be sure you calculate your costs accurately before remortgaging

ask a mortgage broker

How to calculate the cost of your renovation

If you’re planning on a home renovation, you’ll need to calculate the costs involved. For instance, a new bathroom is likely to be cheaper than a double-storey extension. Depending on your home improvement plan, you’ll need to calculate the total costs involved.

This can include costs for:

  • Building materials
  • Planning permission where necessary
  • Architects if needed
  • Builders and trades people
  • Unforeseen costs

Once you’ve calculated your total cost, it’s a good idea to add 10-15% in the case of unexpected costs which can arise. This will give you an indication of the amount you’ll need from your remortgage. You’re then able to aim for the rates required to make remortgaging viable.

You can use all of your equity towards your refurbishments or you may want to add some savings yourself. You’d usually do this if your remortgage doesn’t quite release enough capital to fund your home renovation.

Can I use a home improvement loan instead of remortgaging?

An alternative to a remortgage would be a secured loan. A secured loan may be a more viable option, especially if you need more funds than your remortgage allows.

Secured loans are secured against your assets. In this case, getting a secured loan to pay for home improvements would be secured against your home. There are a lot of risks involved here. This is because if you’re unable to repay the loan, your home will be at risk.

Without understanding your finances, it’s impossible to advise you personally on whether a secured loan would be viable. Losing your home will also result in adverse credit which can put further strain on your financial position. Although mortgages are also secured on properties, mortgage rates tend to be lower than rates for secured loans.

Read more: Should I remortgage or take a secured loan?

How to calculate what you’ll need from your remortgage

A mortgage advisor can calculate what you’ll need from your remortgage. This process involves:

  • Identifying whether or not a home improvement remortgage is feasible
  • Assess your outstanding mortgage balance in comparison to the equity you have
  • Providing you with the best remortgage deals that you’re eligible for
  • Access to specialist lenders if you have bad credit and need to remortgage
  • Advise you on any alternative options, such as secured loans if needed
  • Finally, secure the right remortgage for you

As independent mortgage advisors, we’re not tied to any lenders. This means all mortgage advice considers the borrower’s position first. Financial decisions should be made with due diligence and an experienced broker can help you with this. You can make an enquiry or simply ask our experts a question to get started.

What our remortgage specialists say

There are many reasons to remortgage and doing so for home improvements can be a smart 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.

If you decide to take on a secured loan, do bear in mind that you’ll have to repay your secured loan in addition to your mortgage. You’re ultimately responsible for your finances, so do calculate whether or not a remortgage makes financial sense. Are home improvements a matter of emergency or can they wait?

Be sure to consider all of your options and shop around to make sure you’re really getting the best deal. You may decide to remortgage and use the funds to buy another property. This is also a smart way to utilise the equity you have.

Learn more: How to remortgage to buy another property


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About the author

Mortgage Advisor | More Articles

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.