Remortgaging for Home Improvements – exploring the options
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Many of us want to invest to improve our homes, whether it be converting a loft, adding an extension or renovating bathrooms and kitchens. It’s popular to release equity from your home to fund the work – but how does this work in practice and would it suit you?
How does remortgaging for home improvements work?
Remortgaging is the process of switching your mortgage to a different lender. The most common reason to remortgage is at the end of a fixed rate mortgage deal.
But many people also take the opportunity to remortgage to release money tied up in their property to fund home improvements. As long as you have a certain level of equity in your property, you can borrow an additional amount on your mortgage and receive it as a cash sum.
What do you need to have to remortgage for home improvements?
The main thing you need is equity in your property. In other words, your home needs to be worth significantly more than the size of the mortgage left on it.
If your property today is worth £250,000 and you have a £200,000 mortgage, you have £50,000 of equity and your Loan to Value is 80%. Generally, lenders will let you borrow up to 90% Loan to Value (LTV). The lower your LTV, the more favourable the mortgage interest rates you’ll be offered.
If you’re not reaching the end of your fixed deal, it’s important to check whether you will face an early repayment charge to change lenders. These penalty fees can add up to a large sum of money.
What will lenders look for in remortgaging for home improvements?
You will need to meet all a lender’s criteria in order to be approved for the remortgage. Adding an amount of money onto your mortgage for the improvements is likely to increase your mortgage repayments, and the lender needs to be comfortable that this is affordable to you.
As with any new mortgage application, the lender will also look at your credit history and financial circumstances, as well as the type of property and your home improvement plans.
If you want to borrow a large sum of money, the lender may also want details about the cost of the home improvements, to make sure that you’ve been given a fair price.
Is it a good idea to remortgage for home improvements?
It’s down to your individual situation and what you want to achieve. Generally, though, improving your home is a good idea if it makes it better suited to you and your family. If the money you spend will add value to your home, it could be a positive investment.
There are some situations when remortgaging may not be a good idea, however. For example, if remortgaging rates will put your mortgage payments up to a more challenging level, or if you will have to pay an early repayment charge to switch lenders.
Are there any alternatives to remortgaging for home improvements?
Yes, there are some alternative options to consider. You might look at a further advance from your current lender, or a second mortgage with a new lender – although the fees can be quite expensive on secured loans.
You could also use a home improvement personal loan or a credit card, but do pay close attention to the interest rates, especially if you’re borrowing over a long time.
Some people also pay for home improvements using their savings. If you remortgage following the work a higher property valuation could mean you get better rates.
How much can you remortgage for home improvements?
The amount you can borrow depends on the amount of equity you have and the lender’s maximum Loan to Value.
Affordability is also important. Some lenders will allow you to borrow up to 4.5 times your income; while others might go up to a multiple of five. We’ll help you explore the options for your specific circumstances.
How can a mortgage broker like The Mortgage Centre help?
We’ve helped dozens of clients with remortgaging to fund home improvements, from loft conversions to two-storey extensions. We’ll explain all the options available to you and match you up with a lender that will make it affordable to achieve your plans.
We work with all types of clients, from First Time Buyers to portfolio landlords to get the mortgages they need.
We are fully authorised and regulated by the Financial Conduct Authority for our mortgage advice.
Your property may be repossessed if you do not keep up with your mortgage repayments.
There may be a fee for mortgage advice, however the precise amount will depend on your circumstances. If a fee is charged, a typical fee is £495.
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