Remortgaging for home improvements: How does it work?

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

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.