Remortgaging for home improvements:
How does it work

Stuart Bowman

8-minute read

Last updated: 25th February 2020

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Remortgaging for home improvements may add an little extra layer of complexity to your remortgage, but as your mortgage is probably your biggest financial commitment, it's always worth checking the options – especially if you can't get a deal that make sit worth while.

How do you use a remortgage to fund home improvement work?

You basically take the amount left on your current mortgage and add the cost of your home improvement project, then apply for a remortgage for the total amount:

Remortgaging example
£150,000 outstanding mortgage
+ £40,000 cost for extension or other home improvements
= remortgage for £190,000

Will my bank let me remortgage for home improvements?

Thinking about some significant home improvements such as an extension or conversion? Wondering how to pay and whether you can get a bit more from your mortgage to do it?

You're not alone, figures from UK Finance show typically there are around 40,000 remortgages every month and about half of these involve additional lending to the tune of an extra £51,470, on average.

It's safe to say a big majority of circa 20,000 remortgages will be used to fund some sort of home improvements – it's the main reason banks feel comfortable enough to provide additional funds.

Can I remortgage for home improvements?

As with any remortgage, that depends on your property, your existing mortgage loan, and your current financial situation. Of course, when applying for extra money to fund building work, the bank may also want extra details about the improvements being carried out.

If you have equity in your home, have kept up with repayments and can afford the new repayments, you should be able to remortgage for home improvements, but let's break it down a bit.

Your property

You should be ok as long as the valuation of your house hasn't significantly dropped since taking out your original mortgage, and your LTV is at least 90%. Bear in mind, the higher the LTV you end up with, the higher your rates are likely to be.

Your existing mortgage

You'll need to have made all your prior repayments, and your total outstanding loan shouldn't be too close to your affordability ceiling. On a normal remortgage, this wouldn't really be an issue as long as you haven't experienced a fall in income since your original mortgage.

However, because you'll be applying for a bigger loan you may hit the limits of what a lender is willing to lend. Generally speaking, you can borrow around 4x your income, but each lender decision is based on its specific circumstances and you can find banks offering up to 6x time your income.

Your current financial situation

When you apply for a remortgage you are basically reapplying for a mortgage, so you will be subject to all the same criteria as before: debt-to-income, disposable income, savings, existing unsecured loans and credit score checks.

Remember, if you remortgage for home improvements you'll be increasing your loan amount, so both you and your banks need to be comfortable with your ability to maintain the higher repayments.

Let's look at how the remortgaging situation changes when you factor-in the home improvement work you need.

Can I remortgage for home improvements?

Technically, none or all.

It's really important to understand that you can only borrow against the current value of your house. So, the actual type of work you have in mind, isn't as important as its cost.

As mentioned, banks are relatively comfortable providing additional lending for extensions and other home improvements, after all, the loan is secured on the property value.

Your existing mortgage is £150,000 and you want £40,000 for your building work. That's a total new loan of £190,000. If your house is worth £250,000, then that represents a fairly safe investment to the bank.

However, if your home is worth £200,000 then that's not as safe and your application may be declined. It doesn't matter if you swear blind on your estate agent's honour that your extension will add £50,000 to the value of the house.

What do you need to consider before applying for a remortgage to pay for home improvements?

Even before starting your remortgage application, there's a lot to think through.

Is it worth the cost of the remortgage?

From an emotional point of view, only you will know that. If you don't plan on moving and desperately need to swap the stairs for a fireman's pole, no-one can stop you.

But from a financial point of view, there's more to think about.

As mentioned, your bank only really cares about the current value of your property. However, once they give you the funds, you'll be responsible for paying them back.

With that in mind, it's pretty easy to spot a potential issue; your building work should add value to the property – or at the very least, not lower the existing value.

If this is the case, it's far easier to recover the equity you've used when you remortgaging for the first time after the work, or when you come to sell the property. In effect, the home improvement can pay for itself.

Is it a good investment?

Any home improvement is only a sound financial investment if the value of your home increases by more than what it ends up costing you to have the work done (plus and financial costs).

How do you know if the building work is worth it?

Not all home improvement projects are created equally, and it's always a bit of a gamble. Here's a handy chart showing, on average, where you can make and lose money.

remortgaging for home improvements and adding value to your property

Of course, before you spend a penny, get an estate agent with good local knowledge to value your home as it is now, and what they think it will be worth after the work.

Should you remortgage before or after the home improvement work then?

For most people, you may not have the option, home improvements such as extensions can costs anywhere between £20,000 and £200,000, and unless you have that sort of cash lying around, you'll need to remortgage first.

If you can pay upfront, you could think about doing so then remortgaging afterwards. This way the bank may value your house higher, meaning your LTV will be lower, and you'll have access to better, deals and lower mortgage rates.

Again this represents a bit of a gamble, though. If rates rise, house prices fall, or the work doesn’t result in the expected increase in value, you may not make any savings on your remortgage.

How much will the home improvements (and the remortgage) cost?

First, just work out a rough cost for your home improvement.

For example, if you want an extension, Homebuilding & Rennovating state you should expect to pay around £1,680 to £1,920/m² for a good quality single extension. Although you can pay up to £2,500/m² or more if you want a top-quality finish over multiple storeys. While the HomeOwners' Alliance suggests the cost of a garage conversion averages £6,000.

Once you have that rough figure and you feel like you can afford it, it's time to get some quotes. You'll want at least 3 to give you some ideas about a good price and some options.

Also, make sure you understand the difference between a quote and an estimate:

  • An estimate is a rough guess – even if it's in writing. Basing your finances on an estimate can be a problem, because the price is not legally binding and there's a chance you'll pay more.
  • A quotation is an official price and lists the work to be done in detail. Also, check whether VAT is include… which brings us on too

How much will the home improvements (and the remortgage) cost?

As well as the cost of material and labour, you may also need to budget for:

  • Architects – Some work may require detailed plans in which case a qualified architect will be needed. Expect to pay around 5 to 12% of the total building work cost
  • Planning – A lot of home improvements such as interior work and smaller single storey extensions, don't require planning permission, but if you do need it, you may be paying up to £462. Some of these fees may be included in your architect's bill.
  • Building regulation certificates – The final price will depend on your council, but estimates suggest it's around £100 to submit your plans then another £300 for inspections. Proper certification is essential for when you come to sell your property!
  • VAT – With this, you just need to make sure you make the quotations include VAT, or budget an additional 20%.

Should I remortgage to pay for home improvements or can I use a loan?

The first thing you'll need to ask yourself is 'will I be hit with early repayment charges?' They're the most painful of all remortgaging fees and can end up costing more than the home improvement work itself.

Early repayment charges are usually applicable until you're in the final few weeks of your initial term. However, they do decrease over the duration of that term. If you're already on your lender's SVR, you should avoid the early repayment charges altogether and only have to pay a small exit fee.

That doesn't mean you'll avoid fees altogether. Lenders could still charge you valuation and arrangement fees. Feel free to use our Mortgage Matcher to see right now exactly what remortgage rates you can get and what fees you can avoid.

Mortgage v loan

If your fees aren't too prohibitive, then you may want to start weighing up the interest rates. Mortgage interest rates will be lower than a personal loan, but the chances are you will be paying the interest back for a significantly longer period of time, which means you could be paying back much more in total.

In order to work out what's best for your circumstances, you'll need to compare the rates, the amount of money you want to borrow (the more you borrow on a loan, the higher the rate), and how long you want to spend paying it back for.

Your Mojo mortgage advisers will be able to talk you through all the remortgage options available to you.

There are other considerations too. Do you want an unsecured personal loan – less risky, but more expensive – or a secured loan, which is cheaper, but your house will be used as security.

Second charge mortgages for home improvements

A second charge mortgage, also known as a further advance, is another option you may want to look at.

It's 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 is based on your deposit, credit rating, income, debt and affordability, the terms and eligibility of a second mortgage is based on the equity you have built up in that property.

However, even if you have enough equity to secure a secure charge mortgage, you will still need to prove your ability to repay the new mortgage.

14 steps to using a remortgage to fund home improvements

  1. Estimate costs
  2. Work out remortgage fees
  3. See what remortgage rates you can get with additional borrowing – you can get a really accurate estimate in 15 minutes with Mojo
  4. Get before and after valuation
  5. Get official quotes for the home improvement work and add up all additional costs
  6. Decide if you want to go ahead with the work
  7. Decide if you want to fund it with a remortgage
  8. Apply for your remortgage – simply log back into your Mojo account and update a few details. You can get free advice from a CeMAP registered expert and talk through your remortgage options
  9. Submit your application to your chosen lender – we'll help you get all the relevant documents together. Depending on the lender and the amount of additional borrowing you require, you may need to submit the builders' quotes too
  10. Wait for the valuation and underwriting phase to be complete
  11. Get your approval
  12. Get your money
  13. Get your work done
  14. Remember to get all the certificates you need for when you come to sell your property

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