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How to fund home improvements

Whether you’re planning on getting stuck in yourself or calling in the experts, have you considered the best way to pay for home improvements?

Room for improvement

There are many good reasons to make home improvements, including make room for more family members and making it a suitable place to live into retirement.

Whether it’s upgraded bathrooms, a new kitchen or energy saving upgrades like double glazing, solar panels or boiler replacement, research has found that making improvements can greatly increase the value of your home.

The question is: how should you pay for it?

Options to pay for home improvements

There are many other ways you can put together the money you need to improve your home. But it's important to work out exactly how much you will be paying back each month and making sure you can afford this before going ahead.

Use your savings

Using your savings is usually be the best option to fund home improvements. Stella, a teacher from Manchester, used savings and a work bonus to fund £20,000 of improvements to her family home.

“We knocked three rooms across the back of the house into one large kitchen, we converted a fifth bedroom into a split office and utility, and we had bifold windows fitted," she says.

"We moved house in November and my husband gets his bonus in October so we just put it straight into his account ready for the work to start.”

Gayle, a designer from West Sussex, carried out a complete renovation of her home using money she inherited.

“We wanted to make our home open plan and to our taste," she says. "We spent £60,000 including building work, knocking through three rooms, a new bathroom, a new kitchen, garden landscaping, decoration, damp and chimney work.”

Apply for home improvement grants

Home improvement could be easier than you think, as there is funding available for specific types of home improvement from several companies and organisations.

You may be entitled to energy-saving improvements to your home from your energy supplier, including insulation work and replacing or repairing your boiler, as part of the Affordable Warmth Obligation.

For elderly or disabled people and those on a low income, the Home Improvement Agency can help repair, improve, maintain or adapt a home. Find your local Home Improvement Agency on the Foundations website.

If you're disabled you can apply for a Disabled Facilities Grant from your local council housing or environmental health departments to help towards the cost of adapting your home.

Remortgage

Another option is to remortgage to pay for home improvements. If you have some equity in your home, meaning you owe less on the mortgage than the house is worth, you could consider remortgaging. This involves borrowing money against your house by switching to a new, larger mortgage.

If you switch to a new provider, you might be able to get a better deal on the rate, but you should take into account any early repayment or other fees. Work out how much the new borrowing will actually cost you over the term of your mortgage. Because you are borrowing the money over a long period, it can end up being expensive.

You should also think about what will happen to your monthly repayments if interest rates rise. It makes sense to take financial advice before you even think about remortgaging, because it’s not suitable for everyone.

Nick, a communications consultant from London, remortgaged to cover the £50,000 cost of converting a loft into a third bedroom.

“We decided to remortgage to cover the cost of the renovations because we could get a cheap five-year fix and we wanted the flexibility to pay the money back over a longer period,” he says.

Using equity release to pay for home improvements

The most popular way to release equity from your home is with a lifetime mortgage. It allows you to take out a loan secured against your property. You can choose to make interest repayments if you want, or let the interest 'roll-up'.

The loan and the interest you owe is repaid by selling the property when the last borrower dies or goes into long-term care.

The advantage of this is that you can release some of the wealth tied up in your property without having to sell up and move out. However, it should be used with caution because it can be an expensive way of borrowing and it will reduce the value of the inheritance you leave to your family.

The majority of providers will guarantee you will not go into negative equity or have to pay back more than the value of your home. Using equity release can also affect your right to claim certain state benefits. You should always take financial advice if you are considering releasing equity from your home.

Using credit cards or loans

If you are undertaking modest home improvements, you may be able to pay for them using a 0% purchase deal on a credit card. Usually this gives you a fixed period over which to repay the balance without paying any interest, but you can only borrow up to whatever credit limit you have.

For most people, this means a credit card won’t be enough to cover substantial renovations. There are also risks to think about. When the deal ends after the fixed period, you would need to either consider switching to another 0% deal or else clear the balance to avoid paying interest on the outstanding amount. If you miss a payment, even accidentally, you could lose your 0% deal. And you’ll need to keep in mind that, depending on the balance and APR, the repayment cost could be high.

Loans are another option, but only if you don’t need a very large pot of cash to complete the works you want, and you need to find a loan with a good interest rate.

Both of these options require careful planning to make sure you have a strategy to pay off the balance within a set timeframe.

OneFamily Advice

OneFamily Advice is our lifetime mortgage advice service, available for a £950 fixed fee if you complete your lifetime mortgage application.

Our advisers are members of the Equity Release Council, so you are in safe hands. They will never suggest equity release unless it is right for you.

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Important: The loan amounts above are an illustration of the amount you could borrow. The actual amount may vary depending on your individual circumstances. The figures are not guaranteed and do not constitute an offer to lend. The loan amount will need to pay off any existing mortgage secured against the same property.

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