House prices rising - invest in home improvements? | moneyfacts.co.uk

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Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 18/08/2021

House prices have increased year-on-year by 7.6% in July 2021 according to the Halifax House Price Index, resulting in an average increase of £18,500 compared to a year ago. And, with housing stock still depleted after the surge of demand caused by the stamp duty holiday, homeowners may want to use this additional equity to make improvements to or extend their home.

Four ways to fund extending or improving your home

Here are four ways to fund home improvements or an extension.

1. Remortgage 

You can apply for a remortgage and ask to borrow additional funds for an extension or home improvements. Now is a good time to remortgage for two reasons. Firstly, rising house prices help borrowers to reduce their loan-to-value (LTV) and lower LTVs usually mean lower rates and more lenders to choose from. Secondly, interest rates for mortgages are at historic lows.  Borrowers with a 60% LTV, can now find multiple remortgage deals at below 1%. 
Those borrowers on a fixed rate mortgage deal that has not yet finished should compare the cost of any early repayment charge against the cost of borrowing more at a lower interest rate. 
Use our charts to compare the best remortgage deals and our mortgage repayment calculator to get an idea of what your monthly payments would be. 

 

2. Further advance

Those not able or wanting to remortgage, could approach their existing lender for a further advance. Those borrowing more from their existing lender will still need to meet the lender’s affordability requirements. Borrowers should check the interest rate offered as it may be more cost effective to remortgage to a new lender or to take a secured loan, even if an early repayment penalty applies. 

3. Secured loan

A secured loan or second charge mortgage is an alternative way to borrow money using your home as security. Borrowers that are looking to fund their improvements quickly can use a secured loan as these usually complete in a few weeks rather than months when getting a remortgage. Secured loans can also be useful for those wanting to consolidate debt to reduce their monthly outgoings and looking to fund home improvements. Secured lenders generally have larger risk appetites than traditional mortgage lenders. This means they may accept applications a traditional mortgage lender might decline. Borrowers still need to meet affordability requirements and maximum LTVs are usually no more than 70%. The most competitive secured loan interest rates are more expensive than the lowest remortgage rates.   
Those with a previously poor credit history could also consider a bad credit secured loan.
Borrowers can also speak to Moneyfacts.co.uk preferred secured loans broker.

 

4. Borrowers over 55 can use equity release

Those borrowers aged over 55 could use the most popular type of equity release – a lifetime mortgage to fund home improvements or an extension. Those with an outstanding mortgage can apply for equity release and then use this to clear the balance plus any money needed for home improvements or other purposes. Any cash released is also tax-free (although cash then gifted for example to family members may be subject to tax – read more in our cash gifts and tax guide.)
Borrowers can choose to not make monthly repayments and instead the interest is rolled up, so interest is charged on interest. The lifetime mortgage is only payable when the borrower dies or goes into long term care. Borrowers should make sure their lender is a member of the Equity Release Council to get a ‘no negative equity guarantee’, where the amount they owe will never exceed the value of the property.
Find out more about how equity release works and what to consider with tax and equity release.

 

Options for a DIY budget

Those looking to fund smaller DIY projects could consider a personal loan or 0% purchase credit card. This type of lending is not secured against any asset, so borrowers usually need a good credit score (unless using a bad credit lender or bad credit credit card). Some providers offer consumer the chance to check their credit score for free. Borrowers can also use our loans eligibility service to see which lenders are more likely to accept them for a loan.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT.

Loans are subject to status and valuation, secured on residential property and not available to those under 18. The APRC quoted will be offered to a majority of applicants. You may be offered a higher rate depending on your personal circumstances. All rates and terms may change without notice so please check with Loans Warehouse before undertaking any borrowing.

Note

The Equity Release Service is provided by HUB Financial Solutions Limited. HUB Financial Solutions Limited. Registered office: Enterprise House, Bancroft Road, Reigate, Surrey RH2 7RP. Registered in England and Wales no. 05125701. HUB Financial Solutions Limited is authorised and regulated by the Financial Conduct Authority. Part of Just Group plc. Moneyfacts.co.uk itself is not authorised by the Financial Conduct Authority for equity release business, so we refer our customers to HUB Financial Solutions’ regulated service.
 
Any legal or contractual relationship will be with HUB Financial Solutions. There may be a fee for mortgage advice. Your adviser consultation appointment is FREE and carries no obligation. If you choose to proceed with a recommended product, an advice fee of £1,100 would be payable upon completion. Moneyfacts.co.uk will receive a  commission from the lender. HUB Financial Solutions does not offer advice on investments.
 
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Home renovation extension project how to fund DIY projects

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