Finance

(Home Improvement Loans)
Financing

Building can cost a lot of money so how can you borrow? We examine a few of the options available for people, including remortgaging, loans, overdrafts and from savings. Your home is just about the single biggest investment you ever make. You can put that investment to work for you today!

A personal loan can help you increase the value of your investment, using the equity already built up in your home. This is a great and easy way to tap into the value of your home and to help increase it still further.

So what can the loan be used for? Many people use the loan to finance a loft conversion, build a conservatory or extension, add a garage or replace the roof?


Financing

Few people are lucky enough to move into a home that is exactly the way they want it. For the rest of us, a few home improvements might be necessary. Common home improvements include converting the loft, building a sun-lounge, kitchen extension, new bathroom or building a garage.

Whatever the exact nature of the work, it can be an expensive business; although it may well add to the value of the home if the improvement is well-planned.

The main options when it comes to paying for improvements are

To increase the size of your mortgage:

If you are looking at a large outlay, then the most cost-effective way to pay for home improvements is by increasing the size of your mortgage - simply because home loans are generally cheaper than other forms of finance.

Your mortgage lender will usually lend you the extra money so long as two conditions are met:

The increased loan fits within their lending guidelines as a multiple of your salary.
They have not lent you more than the house is worth after the work has been carried out. If you have substantial equity in the property this is less likely to be a problem. Equity is the figure you get by subtracting the mortgage from the value of the property, i.e. 'your share' of the value of the house.

It is advisable to budget for any immediate improvements before you buy the property, as this will save you having to extend your loan at a later date. A flexible mortgage allows you to only draw down funds when needed.


To use a personal loan or overdraft facility:

The main reasons for financing your home improvements with one of these options are:

You wish to pay off the money you borrow more quickly than you could with a mortgage (unless it is a flexible mortgage).

You are unable to obtain the additional funds from your mortgage lender.

Personal loans and overdrafts are more expensive because they are not secured against your property, and so you can usually expect to pay at least two or three percent more in interest each year than you would for a mortgage.

However, if you repay this loan within a few years, the total cost should be considerably lower than paying it off as part of your mortgage for up to 25 years.

From your income or other savings:

By far the best option, you can enjoy the improvements in your property and your savings being invested for the future.

Before carrying out any structural alterations, you need approval from your mortgage lender, even if you are not seeking an increased loan. Structural alteration includes anything that could undermine the integrity of the property, such as knocking down walls or building new staircases. Check with your mortgage lender if you are in any doubt.


Budgeting

Before you decide to go ahead with any improvements and apply for the necessary finance, get detailed advice before proceeding.

Please note these articles do not constitute regulated financial advice, which recommends a course of action based upon the specifics of your personal circumstances. These articles are intended to provide general personal financial information. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances.

YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT