Remortgaging for Home Improvements
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Remortgaging for Home Improvements
Matt and Richard explain how to remortgage to fund home improvements.
How does remortgaging for home improvements work?
At the core of it, every mortgage is a mortgage. How it would work involves the same sort of metrics around how much you could afford and the percentage of the property that you’re borrowing. That’s what would drive the cost.
This was the first reason that banks ever used to allow you to raise additional funds on top of your mortgage, for the simple reason that it improves the security.
Maintaining and looking after your property is better for the lender and better for you. It’s really positive to go down this path for the long term. There’s a huge piece around energy efficiency as well.
It depends on the scale of work you’re going to do. If you’re just replacing a kitchen or bathroom, that’s absolutely fine. Lenders have a definition around development and it can be a grey area. But if you’re doing work to your property, as long as it’s wind and watertight, you’re generally going to be okay and a high street lender will accept it.
If you start taking off the back of your property, digging down or doing big structural work, that might flip into a development area. So please do talk to us first. We’ll let you know if it’s worth staying with the lender or moving.
You can sometimes sync it around when your existing product ends, but you don’t have to wait. You could get what’s called a further advance, during a product period. You might have taken a five year fixed rate, which a lot of people did after Covid, and still have a few years to run on that – but you don’t have to wait till the end.
Energy efficient is really crucial and something we’re really flying the flag on. We’re proud to have linked up with a company called Effective Home, who retrofit your property to make it more energy efficient. It’s not a fluffy, ethereal thing. The maths makes sense – your outlay is X, your cost of savings are Y, and you could make the money back, probably more quickly than you think.
This link up is absolutely game changing for us because they will do a survey on a property, get that report back to you and you could decide what to do. You might choose to do nothing, which is absolutely fine. But if you are doing work to a property, I would strongly recommend you look at energy efficiency as part of it. That could really help you recoup the costs over time.
The key thing I say to everyone is that it’s really important to understand what you’re doing, why, and how much it costs. Talk to us, and we’ll guide you through the process.
What do you need to have to remortgage for home improvements? What criteria do I need to meet?
It’s everything you would need to remortgage in any scenario. You need the same documents as when you bought the property in the first instance. It’s about proving your income and looking at your committed outgoings like credit cards, loans and things like school fees.
You still need to evidence that, because the lender looks at your overall affordability position. In addition to those usual documents, you will need details of the improvements that you’re going to make.
Sometimes, depending on how stringent that lender is, they might want to see quotes from suppliers on the work you’re planning to do. Ultimately, they make sure that lines up with the additional borrowing that you’re applying for.
Most won’t ask you to evidence it too much if it’s within reasonable numbers. If it’s a new kitchen or bathroom, and it’s within the realms of what people would ordinarily spend, a lender is unlikely to ask you for quotes. Most of the time, they’re OK.
Energy efficiency is a growing area of interest when it comes to capital raising for home improvements. The nice thing about our new link with Effective Home is that they provide a document that neatly summarises what you could do, the costs and the benefits.
For lenders, that makes underwriting really simple. They could see that you’re taking it seriously because you’ve sought help from a well-known, reputable company. You’ve also got a really clear idea about what it’s going to cost.
Can I remortgage for home improvements with bad credit?
Whether you’re remortgaging, buying or raising money for any reason, the same rules always apply around bad credit. It’s just a case of understanding what happened, when, the situation and the value.
The typical one is a car parking fine that ends up going to the County Court to get settled.
If it was a few years ago, for a few hundred pounds, it won’t have a huge impact. Something more serious that ran into a few thousand pounds, or multiple events that are relatively recent, might be more tricky.
Just talk to us. We know how to get around this fairly quickly. We run everything through our software, we could access people’s credit files and do the affordability checks before ever touching a lender.
We need to understand the situation in the context, because life happens. Sometimes some people lose jobs or are bereaved – there are many reasons why things go wrong. Lenders are more forgiving than people realise.
Anything more than six years ago doesn’t appear on your file. Generally, if everything’s been well-maintained for the last two years, you’d have most high-street lenders available to you. If your credit issue was within the last two years, you might have to go somewhere a bit more specialist, but you still have options. We’ll find our way through it and we’ll make sure we get you the right outcome.
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Can I remortgage my Buy to Let for home improvements?
Yes. In a way, the same rules apply. With Buy to Let, as well as income and affordability, the lender is also looking at the interest rate coverage or ICR, to make sure the rent you receive more than covers the mortgage payment. That differs from lender to lender, as they all have slightly different attitudes to risk.
You’re going to need all the usual documents, plus confirmation of the rent. In recent months, as rents have been climbing we have seen more wiggle room for landlords, whose rent previously wouldn’t permit them to raise additional finance. But because rent has climbed, that has allowed the lender to take a more optimistic view.
You will need an up-to-date tenancy agreement that displays the rent you receive, and bank statements showing that rental income being paid in.
We’re hopeful that home improvement for energy efficiency will start to play into that landlord space more. We might even see lenders be more lenient if you plan to make the property more energy efficient.
How much can you remortgage for home improvements?
There’s generally not any monetary maximum. It’s based on two metrics – and the first is the percentage of the property you’re borrowing, called the Loan to Value. Most banks typically go up to about 90% of your current property value.
This could be a little bit tricky if you’re doing a big refurb that will significantly boost the value of your property. That’s where you might go to a more formal refurbishment product or a specialist provider, where they’ll release money in stages to continue the work.
But usually you could just borrow a bit of extra money, as long as the total borrowing is below 90% of your property value, and it is affordable.
The other metric is Loan to Income or LTI. Most lenders will offer you around 4.5 to 5.5 times your income. It’s a sliding scale, where if you earn over £100,000, you could borrow more in percentage terms.
Typically, you could also borrow more if your outgoings are less. So if you’re unlike me – you don’t have children, so you sleep at night and have more money in the bank, naturally you could afford a bit more.
For detailed advice on what you could borrow, just speak to us – because it depends on other things like property value and your specific situation.
Is it a good idea to re mortgage for home improvements? What are the pros and cons?
It really depends on your situation. Generally speaking, you might think it’s a good idea, but it’s worth exploring the reasons why and any potential downsides.
The pros, as we’ve touched on, include improving the energy efficiency of your home to reduce running costs, and allow you to access certain mortgage products that might be cheaper.
You are also likely to improve the value of the property. At the time of recording in August 2024, surveyors and valuers are talking about how certain energy efficiency measures might influence property value, because they are things people now look for in a home.
For example, having a car charger installed is now something people look for when they talk to estate agents. If you increase the square footage of the property, by extending it, creating a bigger kitchen or using loft space, in historical terms that has added value, albeit it’s never a guarantee.
On the flip side, you’ve got to look at the increased cost. Generally, if your mortgage is getting bigger, that normally means it’s more expensive per month. There may be an opportunity for you to raise that money outside of your mortgage, and not securing that debt on your home.
It’s worth sitting down and looking at why you want to do this, and if it will add value. What’s the downside? How much more per month is this going to cost, and are you comfortable with securing that additional debt on your home?
Are there any alternatives to remortgaging for home improvements?
We will always look at alternatives. If you’re not doing a huge project, could you get an interest-free credit card, for example? That could be a good route.
Or is it a timing issue? Perhaps you’re going to get a bonus in the next 12 months. Would a personal loan be more suitable, and you clear it off that way? If it’s not secured to your property, you could pay it off faster. We will look at all the options.
Typically, the bigger the project and the longer it takes to pay back, the better a mortgage starts to look. A mortgage is always the cheapest source of funding, because it’s secured against your home. But it’s therefore a bigger risk to you. We’ll explore the other options in the round before making a full recommendation.
What else do we need to know about remortgaging for home improvements?
This is an area that’s potentially quite complex, even though it’s one of the older aspects of the mortgage market. Lenders can take such different views on how people adapt their property, and particularly within that energy efficiency space.
Getting some advice is always sensible. It’s going to help you make an informed choice, that isn’t necessarily tying you to one lender’s criteria. When you start to search this stuff online, it is a bit of a minefield. It’s really hard to find the information you need.
Talking to an advisor who’s experienced in raising money on your mortgage is always going to stand you in good stead. It’s going to arm you with more information.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
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