Remortgaging for Home Improvements

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Remortgaging for Home Improvements

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Sarah Tucker explores remortgages for home improvements. 

With interest rates rising and property and finance front page news, improving your home is worth thinking about. Don’t let your mortgage trickle on when you have an opportunity to make things better for yourself. 

Today we’re going to be talking about how to potentially improve your home with a remortgage. A lot of people just think about mortgages when they’re moving home, but there’s much more opportunity out there.

Remortgaging for home improvements is one of my favourite topics because I’ve lived it. I know how it feels to be living in a house that’s not quite right, that needs more storage, and looking at people’s extensions and wondering how they did it.

Where should I start when thinking about home improvements?

Lockdown taught us that our homes are really important and the space we live in contributes to our happiness or difficulties. 

So ask yourself the question, if you had, say, £100,000 to improve your house, what would you do with it? Let your imagination run free. How would you like it to look and feel? What spaces cause you the most stress in your house? What spaces are used the most? And what spaces do you think could be used better or differently? 

Pre-extension, my house had a little kitchen, a long lounge, dining room and no utility room. We had two double bedrooms and a little nursery that just about fit a cot in it. 

I would think about knocking walls down and choosing tiles for my bathroom and how to make use of the loft so I could see the sea. I used to think if I had a big kitchen, I’d bake with my children all the time, every weekend. But I would have to make time to learn how to bake! 

How do I find out if I can afford it?

You need to look at your mortgage balance and the value of your home today (not after the work is done). Hopefully you’re going to have lots of equity. Then you need to find out how much it would cost you potentially to do the work, and how much you could release from your equity to pay for it. Speak to a broker – we’ll look at how much you can afford to borrow. 

In our own case, we had equity but we weren’t earning enough to borrow the money, which was an infuriating space to be in – the money was there but we couldn’t get to it. 

Every lender has a different amount that they’ll lend you. It’s generally a multiple of your income, but it’s never as simple as that. Speak to a broker – don’t sit there with a calculator because it won’t be accurate. You could be missing out, particularly if you just stick to one bank, for example, or use an online tool.

If you can afford the bigger mortgage and have enough equity in your house, you can start to get quotes from builders. Always allow for a bit more because it always ends up going over. There’s always something you haven’t thought of, plus the costs of decorating it, buying candles, buying towels for your new bathroom…

How quickly should I get the money ready?

You can do the mortgage straight away, particularly if your rate is coming up for renewal. It’s a good idea to get that money banked, ready. There are mortgages where you’ll only pay interest on the amount that you’ve actually taken. Say, for example, you borrowed an extra £100,000, but your extension didn’t happen for another year. An offset mortgage, for example, might work out better because you won’t touch that money for a year and won’t pay interest on it.

Otherwise, you could put that money into savings and hopefully make a little bit while you’re waiting. But try to push for builders as fast as possible – right now materials are costing more and there are big delays. So don’t sit on it. Don’t wait until you’ve got the money in your hand before you talk to the builders. If you’ve got an agreement in principle or a mortgage offer, get your plans drawn up because everything takes such a long time. 

How long should my new mortgage deal be?

Let’s say it will cost £100,000 to improve your house. You’re adding £100,000 to your mortgage and paying obviously more a month for it, unless your interest rate happens to go down at the same time. Right now, that’s unlikely, as rates are on the rise. 

You’ll look at how long you want to borrow that money over –  it’s an opportunity to reset your mortgage entirely and think about the bigger picture. 

For us, we first thought a five year fixed rate deal would be a good idea. But we knew our extension was going to add a considerable amount of money to our home – we didn’t want to wait five years for that value to go onto our mortgage and potentially give us better rates. 

So we did a two year fixed rate for that reason. It worked brilliantly because in two years our property went up by £250,000, from spending £100,000 on it.

It doesn’t always happen that way. It was just really good timing – our area was doing well at the time.

What if I can’t afford the extra borrowing?

I mentioned earlier that we had the equity but we couldn’t access it, so we took out a secured loan. That will actually allow you to borrow more than a mortgage at the moment. 

We knew our jobs were going well, and in two years time we’d probably be earning more. So we took a loan at a higher interest rate and paid it all off with a remortgage two years later, on a much lower interest rate. But we got to enjoy this amazing change rather than wait two years.

So do speak about that with your broker if you don’t have the affordability now. A typical mortgage will only release say 90% of the property value, whereas a loan can potentially go higher. There may be creative ways of doing this if you feel passionate about the changes that you’re making to your home. 

How do I budget for the build?

Speak to estate agents in your area to see what value your plans will add. They’re always happy to help. You can also look on Rightmove at houses that are similar to yours now and similar to how it could be in the future. 

But the main thing is for you to think about you, your family life, and your happiness in the space that you call home. There are other things to consider too, such as how long you’re going to be there and whether the changes will make money – because some home improvements don’t. In that case you need to cap what you spend to make sure you’re not investing unwisely. 

Is it a good idea to remortgage for home improvements?

It is, if you’re taking everything into account and doing proper research. If a remortgage isn’t available to you, there are alternatives including loans with kitchen companies, for example, or bank loans. Remember the monthly payments will be higher because you’ll be paying back over a shorter period of time.

If you remortgage, you are taking some of your equity to get the work done. But if you’re improving your home that will add to the equity in the long run. 

It was the best thing I ever did to our house, although it was a nightmare to live in when it was happening! I work from home and one of my children was at home full time then. But it gives me fond, happy memories looking back. And I was proud of designing everything, it was overwhelming at times, but it all came together.

I’m excited for those of you who are thinking about doing this. Just reach out to us for help. I can’t wait to see some of the pictures and hear from you.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up with your mortgage repayments.

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September 18, 2023