Are you feeling like renovating your home this year? Possibly a new kitchen or a loft conversion? Or even just a new bathroom? Your remortgage can help fund your renovation project - but there are pros and cons to consider! Here is our complete guide on remortgaging for home improvements.
How does remortgaging for home improvement work?
When you remortgage, you can release any equity in your property to put towards home improvements. In simple terms, you take the amount of value left on your current mortgage and add the cost of your home improvement, then you apply for this total amount with your remortgage. It can add a layer of difficulty to the process, but is a very popular way of unlocking funds for major home improvement projects.
What factors will be taken into consideration when borrowing more?
There's plenty to take into account when it comes to remortgaging. Here are some of the best questions to sit down and ask yourself before you begin the process...
The amount of equity you own in your home
Depending on how much money is in your home currently will depend on how much the lender will allow you to borrow. For example, if your home is worth £300,000 and you owe £150,000 on your mortgage, simply subtract your remaining mortgage from the home’s value. You will have £150,000 in home equity. You can then remortgage to release this equity, with our mortgage advisers there to help you explore current rates.
How much your home has grown in value
It is important that your home has increased beyond the mortgage amount you initially borrowed. There needs to be enough equity in your home for the lender to feel comfortable. Usually, lenders allow you to borrow 80% to 85% of your home’s value, however, some borrowers can increase this up to 90% of the value of the property.
Cost of home improvements
The overall cost of your renovation will also be taken into consideration. When asking to borrow more, the lender will need to know exactly where the money is going and the exact cost of the plans. This again may determine how much you can borrow, based on the home improvement. It is important to be prepared for when the lender asks you these questions.
Affordability
How much can you actually afford to pay? This is the big question the lender will be considering. Borrowing more on your mortgage will result in larger monthly repayments, so it is important to factor in these costs and ensure you can afford the renovation, as well as your usual living costs.
Current financial situation
Having a poor credit history can be a worry at times and this may affect how much more you can borrow. This is because to the lender it may be a risk to allow you to borrow more. However, don’t panic, your mortgage adviser can help advise on this and find the right mortgage for your circumstances. With that being said, it is always important to ensure you are not borrowing more than you can afford.
Personal circumstances
Age can also affect how much your lender will allow you to borrow. The lender will take into consideration your retirement and if you will still be able to pay your mortgage during this later stage of life. Other factors, such as becoming self-employed, losing your job, a reduction in earnings or increase in living costs, can all affect how much you can borrow. If you think your personal circumstances may affect your remortgage, our friendly mortgage advisers can help advise you on the right options for you.
When is remortgaging to extend your home a bad idea?
Remortgaging isn't the right option for everyone. If any of this circumstances apply to you and your home, it might be worth considering alternative options.
You’re still at the beginning of your fixed term
If you are wanting to leave your current mortgage deal before it ends you may have to pay an early repayment charge, the exact amount depends on your lender, as well as the type of mortgage you currently have. Your early repayment charge should be considered in your renovation calculations. If you are at the beginning of your fixed term contract, these charges will be sizeable enough to impact your decision.
You’re renovating to boost value in the short term
Sometimes renovations can devalue a property in the long run! For example, adding an extra bedroom in your home can make a substantial impact to the value, however, extending your current lounge area isn’t as worthwhile in terms of your home’s value. Our valuations calculator can help you see if your renovations will add value to your home.
Your financial situation will be at risk
Will you still be able to save each month for emergencies after your renovation, such as vet bills or car repairs? Borrowing more will result in larger monthly payments, so it is important to look at your financial situation as a whole and take all costs into consideration, to ensure you can afford your repayments and your usual bills.
Should I remortgage after making the improvements?
For some people, this isn’t an option as most home improvements cost between £20,000 to £200,000 and not many people have large sums of money lying around to that value. If your home improvements will add value to your property, you should speak to a mortgage adviser first to discuss all your options.
It could also mean you are now eligible for lower interest rates if your loan is a smaller amount than the value of your property, as your LTV (loan to value) is lower.
Our quick tips for remortgaging to extend your house
- Check that your home has increased in value. If the value of your home has risen quickly since you took out your mortgage you might find you’re in a lower loan-to-value band and qualify for lower rates.
- Beware of early repayment charges that can occur if your remortgage before your current deal is up.
- Keep an eye on your loan-to-value. How much your mortgage borrowing is in relation to how much your property is worth.
- Go through a broker to ensure you are getting the right deal and aren’t paying more than you need to.
- Get cheaper rates for energy-efficient improvements. Often lenders will offer discounted mortgage rates when the home is made more energy efficient. This can be underfloor heating to help lower energy usage or possibly even solar panels to reduce the homes carbon footprint.
Are there other ways to fund my renovation?
Using your remortgage to fund your renovation isn’t right for everyone but you may still want to carry out your home improvements. You can of course save for your renovation and pay for it upfront, meaning no interest on what you are already paying and no monthly repayments. It is important to be sure you can afford this, as your savings will then be tied up in the house, meaning any money needed for emergencies is inflexible. Factoring in any costs that may occur along the way will ensure you are prepared.
If you are unsure of how much your renovation will cost, we have a construction calculator that can help give you a quote. It only takes a few minutes, asking where you will be extending and how big your renovation will be! This may help your decision on how you will fund your extension.
How can we help?
We understand renovating your home can be a big decision and can sometimes be a little stressful! Here at Resi, we have a team of mortgage advisers to help ensure you are making the right decision when it comes to you and your finances.
When you feel ready, our expert mortgage and protection advisers can talk you through your options, whether that is face to face or over the phone. With access to exclusive deals and specialist lenders, our advisers can help find the right mortgage for you and get your renovation project started. Get started with Resi Finance here.
