Remortgaging for Home Improvements

Raising capital for home improvements

Of the many reasons people have a look at remortgaging, remortgaging for home improvements is one of the most common.

It makes sense - the alternative could be to look for another property altogether and if you are happy with the area and investment already made in your house, going through the entire process of moving to find a more suitable property could be extremely off-putting.

Investing in your property is also a good long term plan for many. You will usually increase the value of your home above the amount you put into it, and should you come to sell it later, you will be able to command a far higher price than its current market value.

Improving your home in this way can also help to make it stand out from others in the area, making your upgrades the perfect enticement for an advantageous sale in the future.

Ways to improve your property

Some of the reasons you might want to raise the capital to improve your home include:

Building an extension

A growing family can easily outgrow a home. What once seemed enormous for your needs can become filled with the trappings of a settled home, with furniture, possessions and children all crowding around for space.

Building an extra room or two can provide the answer you need, whether it’s for an extra bedroom, making more living room space or an office so that you can take time away from commuting and dedicate it to family instead.

The cost of building an extension can be considerable, with a reasonable extra ground-floor room often costing around £30,000 and a similar sized two-floor extension coming to £50,000.

One extra factor worth considering is planning permission. While you might not need it for a smaller addition to the house, if your plan could affect your neighbours, it is a good idea to take a good look at your local planning regulations before making any firm decision.

Loft conversions

Similar to building an extension, loft conversions are a good way to use under-utilised space in your house. Loft conversions also tend to be cheaper than an extra section to your building, with many coming in around £15,000.
Again; check the planning regulations before going ahead with your loft conversion.

Internal repairs

As houses age, they need repair and maintenance. It may be that your home has spent a long time with these general repairs being overlooked and they are building up to the point where they just need to be done.

Things like improving insulation, upgrading windows, installing improved heating systems, fixing floors or upgrading electrics and plumbing can all be undertaken as part of a home improvement plan.

New kitchens and bathrooms

Installing a brand new kitchen or bathroom can bring a whole new lease of life to your home. With many modern kitchens offering a host of technological advantages, not to mention the value of an up-to-date design, installing a superior kitchen or bathroom is a great way to improve the value of your house.

Interior design changes

Have you ever wanted to change your house from a mundane floorplan to something a little more adventurous? Maybe moving bathrooms, changing the layout of internal walls, or knocking two rooms together to make one? Turning the inside of your house from its original setting to something more fitting your family’s needs is a perfectly good way to use some of the equity in the property.

Be careful though; while some design changes are sure to add value to your home, there are plenty that will be considered too non-standard for potential buyers and if you are too eccentric in your outlook, you could be spending money devaluing your house. It’s always worth taking the time to really look at plans and discuss your ideas with professionals before making major aesthetic and structural changes.

Investing in your home - the financial benefits of home improvements

When properly done, home improvements can really add a premium to your homes market value.
The following are some realistic boosts to the value of your home:

-      Adding an extra double bedroom (including loft conversions): 10% (£30,000 on a £300,000 home)
-      Adding an extra bathroom (including en-suite conversions): 5% (£15,000)
-      Installing a modern kitchen and merging kitchen / dining space: 6% (£18,000)
-      Adding a conservatory: 5% (£15,000)

Other features, such as increasing natural light, modernising fittings and redoing flooring may not add direct value but can significantly increase the interest in your home when you come to sell it, making a sale faster and more likely.
It is also worth noting that gardens also command a premium.

When considering an extension or conservatory, it’s important that you think about what you may lose as well as what you gain.

Releasing equity through a remortgage

It is important to understand the remortgaging process. At The Mortgage Hut, we have a dedicated team of remortgaging specialists who can help you with your individual needs. A consultation is no-obligation and free, so please do call for a chat, even if you are at the initial stages.

How a remortgage works

When you take out a remortgage, you pay back the entire balance of the existing mortgage and (after fees) are left with the remainder. It is important that you understand the terms of your current mortgage, as some factors, such as early repayment charges, can make a remortgage less desirable.

A remortgage is a new mortgage with a new term and different rate to your original product - often with a different mortgage lender. It is often possible to obtain a superior deal on your remortgage at the same time as releasing equity for your home improvements.

To further understand the specifics of a remortgage, the fees involved, and the various rates and deals you can expect, please look to our range of articles on the subject.

Loan to value (LTV) and remortgages

When you first bought your home, the chances are high that you did so by putting in a deposit of between 10% and 20% and paying the rest with your mortgage. At that time, the loan to value (LTV) percentage of your mortgage would have been 80% to 90%.

As an example, if you buy a house valued at £200,000 with a 10% deposit, then the mortgage is £180,000 (90% of the value) and the deposit is £20,000 (10%).

However, as you live in your property two things happen to lower the LTV and improve your personal stake in the home:

-      The value of your home rises
-      The balance of your repayment mortgage lowers

After five years, the balance of your mortgage would reasonably be around £150,000 while the house may have risen in value to £240,000. Now the LTV of the mortgage is only 62.5% and you have equity totalling £90,000.
It would be impossible to release the full £90,000 in equity as that would require a 100% LTV remortgage, but looking to obtain an 80% LTV remortgage would not be unreasonable. This would be a balance of £192,000, providing £42,000 in cash for use in home improvements.

Other options for funding home improvements

Remortgaging is not the only way to fund home improvements and invest in your home. Other options include:

Using savings

It is good practice to have savings available to you in case of an unforeseen situation, but if your savings are gaining you less in interest than you would be paying if you borrow with a remortgage, then it can make sense to just pay for the work.

For example, a savings account offering 1.25% interest on your balance will net you £125 per year for each £10,000 saved. If you use £30,000 in savings for your home improvements, you will be losing £375 per year in unpaid interest.
By comparison, a remortgage at 3.5% will accrue £1,050 in interest per year.

An unsecured home improvement loan

Though the annual interest on an unsecured loan will be considerably higher than a remortgage and the repayments higher, the loan will be paid off in a far quicker length of time, meaning the overall interest accrued over the entire term could be less.

Unsecured loans are typically capped at £25,000, but do provide an easy option for many smaller improvements or renovations.

Remortgaging after the work is completed

When taking out a remortgage, the LTV for the loan has a large impact on the rate offered; smaller LTV mortgages are typically more advantageous than larger ones.

Taking out the remortgage before the work is done will mean the LTV of the loan is determined by the market value of the property before the improvements are made. This typically means the LTV will be higher than an equal value remortgage made after the work is complete and the market value of the property has increased.

By using savings or a personal loan to fund the project and then opting for a remortgage to pay off that loan, or refund the savings, you may be able to secure a superior remortgage rate, saving hundreds or even thousands of pounds in the long term.