If you’re thinking of giving your home a fresh new look, whether it’s adding an extension, revamping the bathroom, or tackling essential repairs, then renovating will breathe new life into your property and even boost its market value.
But, of course, improvements like these don’t come cheap, which begs the question, how do you cover the costs? In this guide, we’ll go over a range of funding options for home renovations, so you can choose the solution that suits your needs best.
Table of Contents
How to Finance Home Improvements in the UK
1. Remortgage
One popular option is to remortgage your home, which involves switching your current mortgage for a new one, either with your existing lender (known as a product transfer) or a different provider. By doing so, you’ll be able to release the equity built up in your property and get a lump sum to put towards your renovation plans. If you’re over 55, you can release equity through a lifetime mortgage, but this would significantly reduce the value of your estate.
Remortgaging is economical, particularly if you secure a lower interest rate, however, it’s not without its drawbacks, with this approach coming with arrangement fees alongside legal costs, and extending your loan term will mean paying more in interest over time.
2. Increase existing mortgage
Another route is to ask your existing mortgage provider for additional borrowing. If you’re on a favourable interest rate and don’t want the hassle of switching lenders, this could be a straightforward way to access extra funds.
The additional amount would still be secured against your home, meaning you have to be sure of your ability to keep up with repayments. Also, be aware that the interest rate on the extra borrowing won’t not match your current deal as lenders apply a separate rate to the new portion of the loan.
3. Second charge mortgage
A second charge mortgage lets you borrow money using the equity in your home, without changing your current mortgage, it’s essentially a separate loan secured against your property, so you’d end up with two mortgages running side by side, each with its own repayment terms. How much you can borrow depends on the equity you’ve accumulated.
While this is a useful option if you’re tied into a good deal on your main mortgage, it’s crucial to proceed with caution because second charge loans come with higher interest rates and increase the total sum secured against your home.
4. Home improvement loan
A home improvement loan provides a lump sum that you repay over time through monthly instalments. These loans come in two main forms:
- Unsecured loans: With an unsecured loan you borrow without offering any assets as collateral, instead, lenders assess your credit history and income to gauge whether you’re a reliable borrower. These loans have shorter repayment periods, and come with higher interest rates compared to secured options
- Secured loans: A secured loan, on the other hand, is backed by your property, this means you can borrow a larger amount, sometimes at a lower interest rate, and spread repayments over a longer term. Although, there’s a significant caveat: if you fall behind on repayments, your home could be at risk of repossession
5. Credit card
For smaller-scale renovations or cosmetic updates, a credit card offers a quick and flexible way to cover costs if the tradesperson accepts them, it’s especially useful if you’re funding most of the work yourself and just need a little extra to bridge the gap. Many cards come with interest-free periods on purchases, which is helpful if you’re confident you’ll repay the balance within that time frame.
Yet, if the debt lingers beyond the introductory period, interest charges mount quickly. Unpaid balances will also have a negative impact on your credit score, so it’s vital to use this option attentively.
6. Savings
Funding home improvements by using your own savings is the simplest option, particularly for smaller projects. Given that there are no interest charges or arrangement fees involved, it is a lot cheaper than borrowing. It also means avoiding the pressure of repaying a loan, which therefore eases your financial commitments.
The downside is that you’ll need to resist the urge to dip into your savings for unrelated expenses. Moreover, by using your savings, you’ll miss out on any returns they would have otherwise earned in a high-yield account.
Should I Get a Loan or Remortgage to Fund Home Improvements?
Remortgaging to pay for home improvements is a smart move in the right circumstances, for instance, if you’ve accrued decent equity in your property and can access a competitive loan-to-value rate, remortgaging will allow you to borrow at a lower interest rate than a standard personal loan. Another advantage is the ability to spread the cost over the full term of your mortgage, which makes monthly repayments more manageable.
That said, there are trade-offs, in that extending your mortgage means you’ll pay more in interest over time, and since the loan is secured against your home, missed payments put your property at risk. It’s also worth timing your remortgage correctly as switching before the end of a fixed-rate period will trigger a hefty early repayment charge. Finally, if your main aim is to add value to your home, it’s essential to weigh up whether the planned improvements will genuinely increase its market worth.
Do I Need to Tell My Lender About Home Improvements?
Yes, it’s best to let your mortgage lender know if you’re planning major home improvements, as renovations will influence your property’s value or structural condition, which could impact your mortgage agreement.
Keeping your lender informed ensures you stay within the terms of your contract – in some cases, especially where planning permission or building regulations are involved, they’ll require specific details or approval before work begins.
Does the Government Give Grants for Home Improvements?
While the Green Homes Grant previously offered vouchers covering up to two-thirds of the cost of energy-efficient home upgrades (up to £5,000), this scheme is no longer open for applications.
Though, support is still available through the Great British Insulation Scheme, which provides low-cost or even free insulation for eligible households; this initiative is designed to help reduce energy usage and lower energy bills. You could qualify if your property has an Energy Performance Certificate (EPC) rating between D and G.
There is also the ECO4 scheme (Energy Company Obligation). If you live in private housing and receive certain benefits, or if you’re a social housing tenant, you could be eligible for energy-saving improvements. These include loft or cavity wall insulation, as well as boiler repairs or replacements.
How Can I Reduce Home Improvement Costs?
It’s easy for renovation expenses to spiral if you’re not careful, and if the final bill exceeds your borrowing limit then it will put serious strain on your finances, yet there are a few practical steps you should take to keep things under control.
- Set a realistic budget (with a buffer): Decide how much you’re prepared to spend before the work begins, and always include a contingency given that unexpected costs are almost inevitable. A common rule of thumb is to allow an extra 10% for unforeseen issues
- Get multiple quotes: If you’re hiring contractors, don’t settle for the first quote you receive. Ask for itemised estimates from at least three reputable tradespeople, so you can compare prices, check for hidden costs, and choose the best value for money
- Choose the most cost-effective funding option: Not all borrowing methods are created equal. Revisit the options we’ve covered and work out the full cost of each, including interest, fees, and repayment terms, to find the choice which fits your specific financial situation
Get Expert Advice
Financing home improvements is a substantial commitment, as such, it’s important to consider your options thoroughly. With various borrowing paths available, getting professional guidance helps you make a well-informed decision.
Our easy-to-use online tool lets you compare remortgage deals from lenders across the UK, with up-to-date information on the most affordable rates. Once you’ve found an offer which looks promising, our team is on hand to provide tailored support every step of the way.
We take the time to understand your personal circumstances and long-term plans, helping you choose the remortgage solution that’s right for you. Whether you’re ready to move forward or simply have questions, don’t hesitate to get in touch. We’re here to make the process simple, clear, and stress-free.
FAQs
It’s possible to increase your mortgage to fund home improvements by remortgaging, i.e., borrowing more against your property’s value, but not all lenders allow additional borrowing for renovation purposes. Before making any plans, speak with your lender to better understand their specific criteria.
Yes, you can secure a home improvement loan with a low credit score, but your choices will be more limited since lenders consider borrowers with poor credit as higher risk, which generally results in higher interest rates and less favourable terms.
Yes, joint applications for home improvement loans are an option, and applying with someone else could increase the amount you’re able to borrow, however, both applicants must meet the lender’s eligibility criteria, and each will be equally responsible for repaying the loan.
About the Author:
Matt is a top contributor at Speedy Remortgage and has worked in the financial services industry for over a decade now. Through his expertise on mortgage and remortgage has helped hundreds of customers to achieve their property goals.