1. Remortgaging to raise money
A remortgage means switching your current mortgage to a new deal, either with your existing lender or a new one. If your property has increased in value, or you have paid down some of your mortgage, you may be able to borrow more than your current balance and use the extra funds for home improvements.
This may be suitable if:
- your current mortgage deal is ending soon;
- your existing rate is no longer suitable for your circumstances;
- you need a larger amount for a substantial project;
- you would prefer one mortgage payment rather than separate borrowing.
However, remortgaging is not always the most appropriate option. If you are tied into a fixed rate, leaving early could mean paying an early repayment charge. You may also lose an existing rate that is lower than the rates currently available.
That is why it is important to check the total cost, not just the monthly payment.
2. A further advance from your existing lender
A further advance is extra borrowing from your current mortgage lender. It usually sits alongside your existing mortgage as a separate sub-account, often with its own interest rate and term.
This may be useful if you are happy with your current lender and do not want to remortgage the whole balance. It may also be quicker than a full remortgage in some cases, although this will depend on the lender and your circumstances.
A further advance may suit homeowners who:
- want to keep their existing mortgage deal;
- need additional borrowing for a defined project;
- have enough equity in the property;
- can show that the new borrowing remains affordable.
Your lender will still assess affordability, credit history and the purpose of the borrowing. The extra borrowing is secured against your home, so it is important to make sure the repayments are manageable.
3. A second charge mortgage
A second charge mortgage, sometimes called a secured loan, is a separate loan secured against your home while your main mortgage stays in place.
This may be relevant where remortgaging would mean giving up an existing mortgage rate or paying early repayment charges. The Financial Conduct Authority has highlighted the importance of suitable advice, realistic affordability assessments and clear consideration of alternatives in the second charge market, so advice is especially important in this area.
A second charge mortgage may be considered where:
- you want to keep your existing first mortgage in place;
- remortgaging would be expensive because of early repayment charges or rate changes;
- you need to raise funds but do not want to alter the main mortgage;
- your circumstances make a standard remortgage less suitable.
The risk is that it adds another secured debt against your property. If you fall behind, your home could be at risk.
4. Unsecured personal loans or savings
For smaller home improvement projects, a personal loan or savings may be more suitable than mortgage borrowing. An unsecured loan is not secured against your home, but the interest rate, loan size and repayment term may be less flexible.
Using savings avoids interest, but it may reduce your emergency fund and leave you exposed if unexpected costs arise during the project.
Do you need planning permission?
Before arranging finance, check whether your project needs planning permission or building regulations approval. The Planning Portal explains that many extensions can fall under permitted development rights, but only if specific limits and conditions are met. If your plans exceed those limits, a householder planning application may be required.
Lenders may also ask questions about the planned works, especially for larger structural projects.
Which option is suitable?
The right option depends on the numbers and your wider circumstances. A mortgage adviser can compare:
- your current mortgage rate and any early repayment charge;
- the cost of a remortgage versus a further advance or second charge mortgage;
- your property value and available equity;
- monthly affordability;
- the expected timescale and cost of the work;
- whether the improvement is likely to add value.
Final thoughts
Home improvements can make your property more enjoyable and more practical, but the finance needs to be structured carefully.
Before you commit to builders, architects or a lender, it is worth getting advice on the options available and the risks involved.
Need help reviewing mortgage options for a renovation, extension or home improvement project? Houz can explain the options available and the pros and cons in plain English.
Important information: There may be a fee for mortgage advice. The precise amount of the fee will depend upon your circumstances but will range from £49 to £349 and this will be discussed and agreed with you at the earliest opportunity. The guidance and/or information contained within this article is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK.
Sources used: Planning Portal guidance on extensions and permitted development; FCA review of second charge mortgage outcomes; GOV.UK property guidance where relevant.
This guide is general information, not personal advice. Start a fact find to discuss your situation.