A remortgage for home improvements can allow you to withdraw funds from the equity in your home. Your equity can then be used to spend on home improvements, possibly improving the value of your home overall. Whether you want to add a new kitchen, bathroom or a small extension, the choice is yours.
An example of how equity is calculated can be seen below:
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.
The above example doesn’t mean you’d be allowed to withdraw £100,000 for home improvements, as this would equate to a 100% remortgage. Lenders often won’t allow borrowers to withdraw 100% of the equity from a remortgage. Remortgage loan to value ratios will differ and are assessed on a case by case basis.
Should I remortgage for home improvements?
Whether or not a remortgage for home improvements is viable, all depends on the homeowner and property in question. As with any mortgage, an assessment is based on individual circumstances. Remortgages are no different. You can make an enquiry with an advisor or simply ask a specialist a question for a more tailored answer.
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 have some equity available. If property prices have really increased since you purchased your home, then you should have even more equity that you may be able to utilise.
Whether or not a remortgage is viable to fund your home improvements, largely depends on the anticipated costs involved. A new bathroom will of course be cheaper than a double-storey extension. Depending on your home improvements, you need to consider the total costs involved, such as materials, planning permission, architects, builders, etc. Once you calculated your total spend, it’s a good idea to add 10-15% in the case of unexpected costs which can arise.
Once you have a total cost, you’ll have a good idea of the amount you’ll need from your remortgage. This will then give you further insight into the rates required to make a remortgage viable. You may utilise all the funds from a remortgage for home improvements or you may add some savings yourself if the remortgage doesn’t quite release enough capital to fund the home improvement outright.
Secured loan for home improvements
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 loans which are secured against your assets. In this case, a secured loan for home improvements would be secured against your home. There are a lot of risks involved here as if you’re unable to repay the secured loan, your home will be at risk.
From a financial viewpoint, is a home worth losing for the sake of a new bathroom or kitchen? Agreed, that’s an extreme statement, but in extreme circumstances, it can happen. Without understanding your finances, it’s impossible to advise you personally whether a secured loan is 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.
What our remortgage specialists say
There are many reasons to remortgage and doing so for home improvements is popular. It all depends on your current deal and the total cost of the planned improvement. 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 repayments. You’re ultimately responsible for your finances, so do calculate on whether or not a remortgage makes financial sense. Are home improvements a matter of emergency or can they wait?
Be sure to consider all your options. For instance, if you decide to remortgage, then 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 common, especially for those with a lot of equity. Learn more: Remortgage to buy another property.
A specialist mortgage broker can do all this for you. Our expertise enables us to:
- First, identify whether or not a home improvement remortgage is feasible.
- Assess your outstanding mortgage balance in comparison to the equity you may have.
- Provide you with the best remortgage deals that you’re eligible for.
- Access 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 brokers, our advisors aren’t 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 now, or simply ask our experts a question to get started.