What is remortgaging for home improvements and how does it work?
We’ve seen a big increase in people remortgaging for home improvements during the pandemic. People are taking the opportunity to improve their home – that could be an extension, renovations, a loft conversion etc. Having an extra bedroom or a space for a home office can transform your home.
So what you’re doing in remortgaging for home improvements is using the equity you’ve built up to pay for the materials and labour.
The main thing is having some equity in your property. It’s not really ideal for those people that are on a 95% Loan to Value. Say your house is worth £100,000 and your mortgage is £95,000, you’re not going to be able to remortgage for home improvements because there’s no real equity there for you to release.
But for the lucky people that have good equity then remortgaging will work. Generally speaking, if you’ve got 75% to 80% Loan to Value you should be able to mortgage for home improvements.
It does depend on your specific situation, but it can be better than using credit cards or a loan. Extensions, renovations and loft conversions should increase the value of your home once complete – so you will ultimately get your money back.
Yes, and you can sometimes access the equity in your home even before the work’s been done. Some lenders will allow you to take the equity out to pay for the building works. They’ll want sight of the work that’s been done and invoices to see what’s been completed.
Obviously if you’ve got savings you could use those, or you could pay for it with a loan. Say for example your extension is going to cost £20,000. It goes down to personal circumstances, but you might prefer to get a loan for that amount and pay it off in the next four or five years rather than increasing your mortgage debt.
As we mentioned before, the Loan to Value is important. If you have a decent amount of equity in your property then that is taken into account. Your affordability will also be assessed in terms of the new mortgage costs. While the work and renovations will improve the value of your home, you need to make sure you can afford to make those mortgage payments.
Certain lenders will also look at the work you’re doing and the amount you’re borrowing. If your house is worth £100,000 and you want to borrow £50,000 to do a kitchen, the lender will want to see invoices to understand if this is a true cost of the work done. Credit history also comes into it.
Another thing to consider is where you’ve got 18 months or a year left on your current mortgage deal, there may be a penalty to remortgaging. So contact a mortgage broker and they’ll explain the different options you have based on your personal circumstances.
Again, it comes down to personal circumstances and affordability, plus the Loan to Value. Affordability is the big one – making sure you can afford your new repayments and that the sum you are borrowing is a reasonable amount for work to be carried out.
Just complete our enquiry form early in the process – before you actually get the work done. A mortgage broker from Renew My Mortgage will contact you and explain what the options are for you.
That way you will go into having the work done totally prepared. Planning home improvements is exciting and you will want to get the work completed quickly, but just take a little time at the start to make sure you can afford to remortgage.
The last thing you want to be doing is maxing out a credit card up front and then discovering you can’t remortgage – things can spiral out of control. Just get in touch and we can help you find the best way to achieve your home renovation goals.