8 in 10 homeowners face obstacles with their home improvements plan according to the latest Annual HomeOwners Survey by the HomeOwners Alliance. And for once it wasn’t Brexit that was to blame. The second biggest obstacle (behind finding a trusted builder) was the difficultly in financing the costs of home improvements.
But with more people choosing to improve rather than move, how are people paying for their major home improvement projects? Our friends at the HomeOwners Alliance take a look at the options.
1. Use your savings – but get a return on your investment
If you are lucky enough to have a chunk of money put aside then funding your home improvement project may not be a problem. But a savvy saver like you will still want to make sure you get a return on your investment. Our recent research together with the Federation of Master Builders and the Guild of Property Professionals (estate agents) found that you could spend just £3,500 knocking down a wall to create an open plan living area, and add a whopping £48,000 to your home. For the other top 10 low cost projects to add value to your home, check out our guide on How to add value to your home
2. Re-mortgage to release funds
By re-mortgaging you can release equity from your home by increasing the amount you borrow from your lender. It can often be a manageable way of borrowing larger amounts for bigger home improvement projects. You can extend your mortgage with your existing lender if you’re on a great deal. Alternatively use this as an opportunity to re-mortgage to find a better mortgage deal and add in the extra amount for the building work you need to do.
You will need to show you can afford a bigger mortgage and potentially higher monthly repayments.
Once you’ve established how much you will need to fund your project, speak to a fee-free, whole of market mortgage broker to find out if there is a better deal around. By finding a better deal, you may save some money to offset the extra borrowing! For more advice on re-mortgaging visit the HomeOwners Alliance.
3. Home Improvement Loans
Home improvement loans are pretty similar to unsecured personal loans where you borrow a sum of money and agree to pay it back monthly plus an agreed interest rate. When you take out a personal loan, your payments are fixed – making it easier to budget – and you can generally choose to repay the amount borrowed over one to three or five years.
But because the time frame to pay back the loan is relatively short, the monthly payments can be quite expensive so you’ll need to make sure you can afford them on top of all your other outgoings.
4. Using a credit card
For smaller updates to your home, such as laying new floor or updating your wall tiles, using a credit card can be an effective way to pay, helping you spread the costs. If you have an existing credit card, why not consider switching to a 0% interest credit card on new purchases and for balance transfers to avoid paying back additional interest?
The other benefit of using a credit card is that the Consumer Credit Act protects you. Any purchases you make between £100 and £30,000 are protected if, for example, the company you buy from goes bust or the purchase is faulty.
But be alert to the main disadvantage of credit cards: the risk of getting into rising debt. Don’t miss a payment, pay more than the minimum each month or, better still, pay off the balance in full as soon as you can.
5. Equity Release
If you’re over 55 equity release could be another alternative to financing your home improvement project. If you don’t have savings or a large income, but you have lots of equity in your home, then it’s a way to release some of the funds. However it’s not something to go into lightly. If you’re in your 60s and thinking of using equity release to fund an expensive home improvement project, remember you’re eating into the money you may one day need to fund your retirement, pay for care homes and other support. Read our guide on whether equity release is right for you.
About the HomeOwners Alliance
The HomeOwners Alliance is a consumer property advice website offering homeowners advice on buying, selling, managing and improving their homes. They are here to make sure homeowners in the UK have a place for independent advice in all matters of property advice. Visit www.hoa.org.uk for more information