Remortgaging for Home Improvements
Remortgaging for Home Improvements
Paul Holland answers frequently Googled questions on Remortgaging for Home Improvements
How does remortgaging for home improvements work?
When you remortgage, you’re moving your borrowing with your existing lender to a new lender. Let’s say you’re with Nationwide at the moment and you remortgage your £100,000 loan to Halifax.
You could apply to Halifax for more than £100,000. The difference between the two will basically be a ‘capital raise’ for the purpose of home improvements. Let’s say you get some quotes for some work at your house for £30,000. You could remortgage with Halifax for £130,000.
When that mortgage application completes, Halifax pays off Nationwide with the £100,000 and there will be a surplus of £30,000 (minus any fees) paid to you for the purpose of renovating your house. You then begin to make your repayments to your new lender.
Remortgaging is an alternative to either funding work yourself via your savings or through other borrowing. It can be quite advantageous in certain instances..
What do you need to have to remortgage for home improvements?
Borrowing linked to a property is essentially a secured loan, in which case there will always be a full assessment based on the lender’s criteria.
It will include an affordability calculation to decipher whether or not the new borrowing amount is affordable based on your current income and expenditure. You might have previously applied to them based on a certain amount, and if you’re adding to that they will want to go through the details again.
They’re also going to assess your credit status. What is acceptable will differ from lender to lender. They will also want to understand the purpose of the additional borrowing – although this will depend on how much you need. If you want another £100,000 on top of your current mortgage the lender is likely to delve a much deeper into your plans. Ultimately, your property is their security, so they might ask you for plans or drawings – and in some instances we’ve had lenders ask for quotes from builders.
The Loan to Value is also important. Let’s say your property is worth £500,000 and you owe the mortgage lender £250,000 – then you’re at 50% Loan to Value. If you want to increase that mortgage all the way up to 90% or above, it’s going to become quite difficult. So it’s very important to factor in your Loan to Value when you’re looking at how much to borrow.
Is it a good idea to remortgage for home improvements?
Whether it’s going to be a good idea will depend on the bigger picture for each individual. There are lots of reasons why it could be a really good idea, but it might not be the best choice for some people.
Things to take into account include the type of property you’re in and the timing – what life stage you’re at, your career, your children’s ages, your own age… All those factors are relevant in whether remortgaging is a good move for you, so talk it through with an expert.
Are there any alternatives to remortgaging for home improvements?
Another option is to borrow money on a ‘further advance’ with your existing lender, which is ultimately topping up your borrowing as a separate application.
You might do that because you’re on a fixed rate and don’t want to pay the exit penalty that would apply if you remortgage to a new lender. It’s almost like a mini version of a remortgage, but with the same lender. You’re just borrowing an additional amount.
That will all just be assessed as above. It’s not always as straightforward as it can be to remortgage, and not all lenders will let you do it.
Another option is a second charge mortgage or a second charge loan. This is exactly like a further advance, but with a different lender. You’d have your main mortgage with Nationwide, for example, and you’d take a second charge mortgage with a different provider. It’s unlikely to be your high street bank.
There are numerous mortgage providers who will be happy to put a second charge on your property, alongside your main mortgage. It normally comes with a higher rate, as would unsecured borrowing which is another potential route.
You could take a personal loan to fund home improvements, subject to your credit status and affordability. Or you could use credit cards or, if you’re lucky enough to have a family member with some spare cash, perhaps they could fund a bit for you as well.
How much can you remortgage for home improvements?
You can remortgage your property up to a certain Loan to Value. Some lenders might let you go to 90% for home improvements. So you can look at what 90% would get you in terms of a loan and deduct your existing mortgage from that.
If your house is worth £100,000 and you’ve got £70,000 on your mortgage, that’s a 70% Loan to Value. if your lender lets you go to 90% Loan to Value then you could get £90,000, giving you £20,000 surplus.
The only reason that you wouldn’t be able to get £90,000 would be if your income and expenditure scenario didn’t quite get you to £90,000 or if you weren’t creditworthy.
What else should I consider in remortgaging for home improvements?
It sounds relatively straightforward, so you might just decide to fund a single story extension to your house with a further advance or a remortgage. But it’s not necessarily that simple.
A good broker is going to be able to steer you in the right direction, factoring in the bigger picture and things that you might miss. Remortgaging is not always the right thing to do, so having an experienced expert to advise you can really help.
When I have these conversations with clients of mine it’s actually very rare that we end up taking the approach that the clients initially considered! There’s normally lots of positive reasons why there’s a better solution. So it’s definitely worth having a chat with your broker before you make any decisions.
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 may be repossessed if you do not keep up repayments on your mortgage.