Remortgaging for Home Improvements
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Remortgaging for Home Improvements
Lee and Neezam talk all about Remortgaging for Home Improvements.
How does remortgaging for home improvements work?
It’s very similar to looking for a new mortgage deal. When you look online for a new mortgage, effectively you are remortgaging to another bank. The only difference here is that you are increasing your borrowing at the same time.
What you’re doing is increasing your mortgage loan against your property value. You’re effectively taking ‘equity’ out of your property. Equity is the difference between your property value and the mortgage that you owe.
When you’re remortgaging for home improvements, you’re increasing your mortgage borrowing to access the equity in your property. You can use that additional money for extensions, a loft conversion, renovations or a new kitchen or bathroom.
What do you need to have to remortgage for home improvements?
It’s similar to applying for any mortgage, whether that’s a new mortgage to move home or a remortgage to another deal.
You need evidence that you can afford to take on the additional borrowing. If you’re switching to a new lender you will have to go through a full affordability assessment. That means proving your income and that you can comfortably afford the additional borrowing. The lender will also want to understand what you’re looking to borrow the money for.
Home improvements are generally accepted by most lenders. They’re usually quite comfortable lending additional money for this purpose.
You’ll also go through a credit check, so if your credit position has changed – you’ve had a couple of missed payments or are in arrears, these things can make it more difficult to remortgage.
Loan to Value limits will also come into play. Loan to value (LTV) is the size of your mortgage against the property value as a percentage. If your property is worth £100,000 and your mortgage is £75,000 that would be a 75% LTV. You can’t take out all of your equity from your home.
Those limits will vary depending on the lender. Some lenders will lend you up to 75%, some will lend up to 85% and one or two will go to 90% or even 95%. Finding the right lender will allow you to borrow what you need.
It also depends on the type of property. For example, a bank might lend up to 90% on a house but only 80% on a flat – so there are lots of different limits. That’s why we suggest speaking to a broker if this is something you’re looking to do.
Is it a good idea to remortgage for home improvements?
It absolutely can be. As mortgage brokers we’re here to help you understand the implications of increasing your borrowing and whether it’s a good idea for you.
We’ll look at the type of work you’re looking to do – is it significant? I wouldn’t recommend remortgaging for low value borrowing just for a new sink and taps. That wouldn’t be cost effective. But if you’re doing some significant work to the property, you will be adding value to it. It’s never guaranteed, but usually that’s the case.
Are there any alternatives to remortgaging for home improvement?
If you have an existing mortgage you might be better off speaking to your current lender before remortgaging. You might have a really good rate that you’ll lose if you switch deals. So speak to your current lender and see if they’ll lend you a ‘further advance’ or a ‘home loan’.
Another alternative could be getting a personal loan. With a remortgage you’re raising, say, £20,000 and paying it back over 30 years – you might want to pay that off a lot quicker. A personal loan might allow you to borrow that money over a shorter period of time – ten years or five years – instead.
Another option could be a credit card. You might have a 0% percent credit card deal that could be a way of financing your home improvements. It all depends on how much you’re looking to borrow and what your strategy is. Are you looking to pay it off quite quickly or are looking to keep the monthly payments within a certain amount?
One thing we sometimes see is that a client will carry out quite significant home improvements on a credit card, with the assumption that they can remortgage and access their equity later. But if that doesn’t go to plan and they can’t borrow what they need, they’re left with quite a significant debt. So before you explore those alternatives, speak with a broker to make sure it works for you.
How much can you remortgage for home improvements?
It will really depend on your mortgage balance and your property value. All banks have different criteria and this is where it can be a bit of a minefield.
When you’re looking online, it’s not obvious that each bank has different criteria about how much you can borrow for home improvements, or how much equity you can take out of your property.
Generally, the highest you could potentially reach is 90% or 95% of the property value – a handful of banks will go as high as that. In effect, if you have a property worth £100,000 you can borrow up to £95,000 in a mortgage.
Most banks set a minimum of around £5,000 in additional borrowing for home improvements so it’s only beneficial if you’re looking at doing some significant work.
A mortgage advisor has access to multiple lenders, which will give you the best chance of understanding what you can achieve in terms of borrowing.
Do you have any final advice on remortgaging for home improvements?
The only thing I would add is if you’re carrying out major home improvements with structural changes, an extension or anything quite significant, be prepared with quotes and plans.
A lender will need to be satisfied that you’re using this money as you say. There might be certain triggers when you’re borrowing a certain amount, at which point a lender may request a quote from a builder or to see your plans.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Think carefully before securing other debts against your home.
Your home and/or property may be repossessed if you do not keep up repayments on your mortgage.