Remortgaging to fund home improvements can be worth it for some homeowners because it spreads the cost over a longer term and may secure a lower rate, but it increases overall interest costs, ties the borrowing to your home and can trigger early repayment charges. This is secured borrowing against your property, so whether it suits you depends on your equity, your current deal and how much you plan to spend. A broker can assess your circumstances before you commit.
Table of Contents
-
What are the advantages of using a remortgage to pay for home improvements?
-
What are the downsides and risks of remortgaging for renovations?
-
Remortgage or personal loan — which is better for funding building work?
-
When is remortgaging a sensible choice for home improvements?
-
Do I need permission or paperwork before borrowing for a renovation?
How does remortgaging for home improvements actually work?
Remortgaging means replacing your existing mortgage with a new one, either with your current lender or a different lender, and releasing equity in the property as part of the new loan. According to Sprive, taking out a new mortgage on your property to replace your existing one can be done with your current lender or a new mortgage lender.
There are two common routes. The first is a full remortgage to a new deal with a higher loan amount. The second is additional borrowing on top of an existing mortgage, which NatWest describes as a way to borrow more against the value of your home.
A worked example from Compare the Market illustrates the mechanics. If you have £150,000 left on your current mortgage and want £20,000 for home improvements, you would be asking a lender to lend £170,000 against the property.
The extra money is secured against your home, not unsecured like a personal loan. NatWest confirms that additional borrowing taken through remortgaging is secured against the property.
One detail that catches people out is that the interest rate on any additional borrowing may differ from your existing mortgage rate. Nationwide states that the interest rate of any additional borrowing may differ from that of your existing mortgage rate.
How much can I borrow against my home for renovations?
The amount you can borrow is set by your loan-to-value ratio and lender criteria, not simply by how much you would like to spend. One lender example from Nationwide allows borrowing up to 90% of the home’s value for home improvements, with a minimum of £5,000.
Lenders also assess affordability, so the amount you can release depends on your income and existing commitments as well as your equity. A larger income and fewer outgoings will generally support a higher borrowing request.
If you are only a few years into a 90% or 95% mortgage, you will not have built up much equity to release. Compare the Market makes this point clearly, noting that early in a high loan-to-value mortgage there is limited equity available.
Some lenders restrict what released funds can be used for. Nationwide states that you cannot borrow more to raise money for a business or to buy land or a property you wish to let out.
What are the advantages of using a remortgage to pay for home improvements?
A remortgage lets you spread the cost over the remaining mortgage term instead of a short personal loan term. Compare the Market notes that personal loans are typically limited to one to seven years, whereas a remortgage gives you the mortgage lifetime to pay back renovation costs.
The interest rate may also be lower than unsecured borrowing, which can mean more affordable monthly repayments. Sprive lists lower interest rates and more affordable monthly repayments among the potential advantages of remortgaging for home improvements.
The improvement may increase the property’s value, which can support the borrowing over time. Sprive includes increased property value as a possible benefit, though the outcome depends on the type and quality of the work.
Consolidating the renovation cost into one monthly payment is another practical advantage. Instead of juggling separate credit agreements, you have a single mortgage payment that includes the additional borrowing.
What are the downsides and risks of remortgaging for renovations?
The main downside is higher overall cost, because a longer term means more interest paid in total. NatWest notes that remortgaging may result in higher overall costs due to a lengthened mortgage term and increased interest payments.
You are also increasing debt secured on your home, which carries repayment risk. Sprive lists increased debt and repayment risks, including repossession, as potential disadvantages if you fall behind.
Fees can add up. NatWest lists possible cons as additional fees including solicitors’ fees or early repayment charges. Sprive adds arrangement, valuation and legal fees to the list.
Early repayment charges are a specific concern if you remortgage before your current deal ends. Compare the Market states these are typically 1–5% of the outstanding mortgage balance, and NatWest confirms they may apply before your deal expires.
The process is also longer than a simple unsecured loan. NatWest notes that remortgaging involves a valuation and a solicitor, which adds time and complexity.
Remortgage or personal loan — which is better for funding building work?
A remortgage spreads the cost over the mortgage lifetime, while a personal loan is typically limited to one to seven years and is unsecured. Compare the Market sets out this contrast clearly.
A personal loan avoids putting your home at risk but usually carries a higher interest rate. A remortgage is cheaper on a monthly basis but secured against your property, as NatWest confirms for additional mortgage borrowing.
Other options include increasing your existing mortgage, a second charge mortgage with two sets of repayments, a secured loan, 0% or low-interest credit cards, savings and equity release. Compare the Market lists all of these as funding routes for home improvements.
Andrew Westwood Mortgage Broker, a Gloucester-based broker with 30 years’ financial services experience, can talk through these routes and help you weigh up which fits your circumstances. No outcome is guaranteed, and the right choice depends on your equity, income and existing deal.
When is remortgaging a sensible choice for home improvements?
Remortgaging tends to suit homeowners with meaningful equity, a deal nearing its end, or a large renovation budget that would be awkward to repay over a short loan term. NatWest notes that spreading costs over a longer term may suit some homeowners, while Compare the Market highlights the short repayment window on personal loans.
It makes less sense if you are early in a fixed deal facing early repayment charges, or if your equity is thin. NatWest warns that early repayment charges may apply before your current deal expires, and Compare the Market notes that early in a 90% or 95% mortgage you will not have much equity.
Match the spend to the property. NatWest advises that if you buy a brand new kitchen, your total spend should be in line with the overall value of your home or you will end up losing money.
A broker can review timing and deal end dates before you commit, helping you avoid unnecessary early repayment charges.
Do I need permission or paperwork before borrowing for a renovation?
Sometimes, depending on the work. Some projects, such as garage conversions, may not need planning permission but must still comply with building regulations, according to NatWest.
Confirm costs, quotes and timelines before applying. Lenders will want to understand the purpose and amount of the borrowing, so having clear figures and a realistic plan makes the application smoother.
Lenders may ask about the planned works as part of the application and valuation process. NatWest notes that the remortgage process involves a valuation, which gives the lender a chance to assess the property and the proposed improvements.
Key Takeaways
-
Remortgaging for home improvements means replacing your existing mortgage with a new one and releasing equity as part of the loan.
-
Additional borrowing through a remortgage is secured against your property, unlike a personal loan.
-
One lender example allows up to 90% of the property’s value for home improvements, with a minimum of £5,000.
-
Spreading renovation costs over a longer mortgage term lowers monthly payments but increases total interest paid.
-
Early repayment charges typically range from 1% to 5% of the outstanding balance if you remortgage before your deal ends.
-
Personal loans are usually limited to one to seven years, whereas a remortgage gives you the mortgage lifetime to repay.
-
If you are only a few years into a 90% or 95% mortgage, you may not have enough equity to release funds.
References
-
Additional mortgage borrowing for home improvements | Mortgage Guides — NatWest, date unknown
-
Your borrowing more options — Nationwide, date unknown
-
Remortgage for Home Improvements – Is It Worth It? — Sprive, date unknown
-
How To Fund Home Improvements – Mortgages — Compare the Market, date unknown