We are often asked by clients if is it possible to remortgage to make home improvements.
The simple answer is yes, it’s possible and quite common, but the complex answer is that there are a range of things to consider when you are thinking of a remortgage to make home improvements.
Do you have sufficient equity?
The lender will need to be satisfied that there is enough equity in your home to enable you to borrow a proportion of it. (Mortgage equity is the difference between what you owe on your mortgage and the current value of your home.)
The lender must also be assured that the increased mortgage repayments will be affordable for you.
Given those two criteria are met it is likely a lender will be amenable.
Why are lenders willing to consider a remortgage to make home improvements?
The argument is that home improvements increase, or at the very least maintain, the value of your home. So, from a lender’s point of view this makes their loan more secure not less, providing affordability criteria are met.
An article in House Beautiful Magazine on house renovation (quoting an earlier Hiscox report) cites the projects that add the greatest and least value to a property – an extra bedroom for example up to 11.2%, alas for our green credentials, solar panels just 0.5%.
As a useful rule of thumb, in London and the Home Counties, it has been suggested that if you spend £1 on your property, you get £2 back in value. So, £50,000 of work would equal a £100,000 boost in value.
This highlights why lenders are often so keen to agree to a remortgage to make home improvements. The actual change in your property value will vary based on type of property and the home improvements done, but it is a useful rule of thumb.
Below are a few key factors when considering home improvements with links to more detailed reading:
Converting your loft
A loft conversion, to add an extra bedroom and in many cases an extra bathroom, can add significant value to your home. The potential to undertake a loft conversion may even be something you consider when buying a property.
As this article from the Guardian suggests, you can add as much as 20% to the value of your home from this alone. According to Zoopla, the average London house price stands at £696,453. So, on average, that would be an increase of a whopping £139,291! This substantiates the maxim of the £1 of work = £2 in value mentioned above, if not more.
Complexity of Work
Most lenders have little issue with your raising money on your remortgage when doing ‘non-structural’ works. This generally means up to and including most loft conversions.
Nevertheless, if you are planning on embarking on more complex structural work such as digging out a basement, or removing a rear wall, you may need your current or new lenders approval.
We suggest you seek expert advice before proceeding as in the past we have seen clients commence work, not tell the lender, then come to grief with the lender (if not the builder) halfway through the process.
Seek advice before you start as we can pretty much always find the right lender for the work you want to do.
Do’s and Don’ts of home improvements
We are not experts on home improvements so have a look at this excellent article from Property Workshop on ‘what should I do to increase the value of my home’. It’s well worth a read as there are many quick wins, and advice on home improvements that regrettably don’t add value.
Do I need to remortgage to raise the money?
Not necessarily. You can remain with your existing lender and arrange a new deal, called a Product Transfer, or simply have an additional loan called a Further Advance.
We can arrange this for you, often on better terms than if you went to your lender directly and we remove the hassle for you of dealing with the lender’s time-consuming administration.
Whatever borrowing you would like to arrange to make your home improvements we would strongly advise that you speak to an independent advisor before taking on any additional lending or starting work. Sorting this out correctly at the beginning can make the whole project run more smoothly.
Please do contact one of The Team for further advice.