Remortgaging for home improvements: How does it work?
Raising funds for home improvements is a popular reason to borrow more money through a remortgage, but it can add a little extra complexity to your application. We look at what you’ll need to consider if you’re planning to remortgage to improve your home.
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How do I remortgage to fund home improvements?
In simple terms, you’ll need to add the amount left on your current mortgage loan to the cost of your home improvement project, and apply for a remortgage of the total amount.
Here’s an example when remortgaging to build an extension on your home:
Remaining mortgage balance from home purchase - £150,000
Cost for building materials and works on extension - £40,000
= remortgage needed £190,000
Lenders vary in the LTV you’re able to borrow when applying for a remortgage to improve your home, but the maximum is typically around 80% LTV. This means that you’ll need enough equity to cover a deposit of around 20% of the loan amount - or £38,000
10 steps to using a remortgage to fund home improvements
- 1.
Estimate costs for both the project and the cost of remortgaging
- 2.
Check remortgage rates - get an accurate estimate in 15 minutes with Mojo
- 3.
Get a before and after valuation of your home
- 4.
Get official quotes for the home improvement work and add up all additional costs
- 5.
If you decide to remortgage to fund your project, simply log back into your Mojo account and update a few details. You can get free advice from a fully qualified and FCA registered expert and talk through your remortgage options
- 6.
Submit your application to your chosen lender – we'll help you get all the relevant documents together
- 7.
Wait for the valuation and mortgage underwriting phase to be complete and to receive approval
- 8.
Receive your money
- 9.
Proceed with the home improvements
- 10.
Remember to get all the relevant building certificates - they’ll be needed to sell your property
Will my bank let me remortgage for home improvements?
It depends on the bank or lender. Most are happy to consider some improvements, especially if they’re likely to increase the overall value of your property - for example, an extension or loft conversion.
However, like any mortgage, the greater the risk in lending, the less likely you are to get the loan you need. It’s a great idea to have thorough plans and costs, as this will give the lender confidence that you have seriously considered the project.
You’ll also need to consider whether you meet the lender’s affordability and other criteria, which is something a mortgage advisor can help you with. But so long as you can afford the repayments and have enough equity in your home, you should be able to remortgage for home improvements.
What else will the lender consider?
Your property - the current value of your home will play a role, but so long as the valuation hasn't significantly dropped since taking out your original mortgage, you should be ok. Although keep in mind that the higher the LTV (loan to value), the higher the interest rates.
Your existing mortgage - Lenders will want you not to have missed any mortgage payments to date, and have repaid enough that the new borrowing won’t push you over your borrowing limits - usually between 4 and 5 times your income.
Your plans - Lenders will usually want to be sure you have any relevant planning permission in place, or at least applied for, and that you have reliable and trustworthy trades people in mind to carry out the works. They may also be concerned with the type of changes and how they sit with the property type.
It's also important to understand that you can only borrow against the current value of your house. So, the scope and costs will also be a factor.
Should I choose a remortgage over a loan?
Other than cost, the main factor to consider here is risk. An unsecured personal loan is less risky, but usually more expensive. A secured loan (such as a remortgage) usually has a cheaper rate, but in this case, your house is used as security.
Mortgage interest rates are typically considerably lower than the rates on a personal loan, however, keep in mind that you’ll usually repay over a much longer period. Even much lower interest rates paid over a significantly longer period of time, could mean paying back more in total.
To work out what's best for your circumstances, compare the rates on the amount you want to borrow, and how long you want to spend paying it back for. Your Mojo mortgage advisors will be able to talk you through all the remortgage options available to you and help with your comparisons.
What should I consider before applying for a remortgage for home improvements?
There are a few questions you should be asking yourself before you consider whether a remortgage is the best way to fund your home improvements project. For example:
Is it worth it? The additional stress and cost that comes with this sort of project is not to be overlooked. But, of course, only you can answer whether the project is essential to your life goals
Is it a good investment that will add value to your property? Most people assume that any development project will add value to their property, but it’s a good idea to get advice from a property expert, such as an estate agent.
Losing a bedroom in place of a fancy bathroom can be more detrimental in some locations than others, for example, and home improvement is only a sound financial investment if the value of your home increases by more than the cost of the work.
Remortgaging for home improvements FAQs
Most people only borrow the money for home improvements if they have no other option, so it’s unlikely you’ll be able to do it the other way around. However, if you can pay upfront, the increased value of the finished project should lower your LTV giving you access to better deals and allowing you to compare the best remortgage deals for lower mortgage rates.
Early repayment charges are usually applicable until you're in the final few weeks of your initial term, so it depends when you decide to remortgage. If you're already on your lender's SVR, you can leave at any time, however, by simply paying a small exit fee.
If you’re still within your initial term, you have the option to wait until the end date, or pay ERCs. Although pricey, they do decrease over the duration of that term. So, for example, if you’re nearing the end of your term, you’ll pay lower ERCs than if you’ve not long taken out the mortgage.
A second charge mortgage, also known as a further advance, is basically a second secured loan on your property, but there is a key difference.
A standard mortgage is secured on the property you are going to buy and your deposit, credit rating, and affordability. Eligibility for a second mortgage is based on the equity you’ve built up in property. However, you will still need to prove your ability to repay the new mortgage. Working with an online mortgage broker to compare whole of market deals is a helpful way to find the best second mortgage options for you.