Can I raise money on my mortgage for a house extension or home improvements?

If you would rather extend than move home, are you looking for the best way to finance a house extension?

As a nation we are obsessed with decorating, refurbishing, and extending our homes. With properties in the UK being in such high demand and house prices constantly rising many decide to extend their homes as a cheaper alternative to moving. The average cost of a 30m2 single-storey extension is around £40,000, an amount that the vast majority of people don’t have to hand.

We’ve seen this first hand in Hitchin and Stevenage, Hertfordshire. Remortgages and mortgage extensions have increased in many cases due to the desire to ‘upgrade’ rather than move home.

What’s the solution to financing an extension?

Borrow the cash.

Most people will turn to the bank for an unsecured loan. As an unsecured loan isn’t backed by any assets the lender will have stricter lending criteria. What this means is that firstly you will need to have a very good credit score to even be offered the loan, and secondly, it means that the interest rate will be higher, resulting in higher monthly repayments and greater cost overall. Plus, who can be bothered to go and speak to several lenders, having the same conversation to try and find the best deal?

Why not re-mortgage your home, raise the extra capital and fund your refurbishments that way?

As long as there is enough equity within the property to be able to borrow the amount you need, then it is the perfect way to raise the funds. The other thing to consider is whether you will need to pay any early repayment charges. These are usually payable if your mortgage is within the fixed-rate period and will generally be a percentage of the remaining balance. You will be able to find out what early repayment charges you have, by either speaking to your lender or checking your mortgage illustration.

Important things to consider before remortgaging

Is it a good investment? Before starting any home improvements, it is important to consider whether it is worth spending the money on the property. It is only worth doing home improvements if it will cost less than the amount the property value will increase by. The other aspect to consider is whether the property value will increase beyond the maximum amount that someone is willing to spend for that area, this is known as the ceiling price. By exceeding the ceiling price, it will become difficult to sell the property in the future. The best way to be sure is to speak to a local estate agent.

Benefits of using a mortgage for home improvements

Remortgage to finance house extension

By using a mortgage to finance your project you are providing the lender with security. The security that in the unlikely event that you are unable to repay the loan they will still be able to get their money back. This makes the lender much more open to lending meaning that the criteria for the lender isn’t as strict and the interest rate available to you is likely to be much lower.

Yes, mortgages come with arrangement fees and there is the need to instruct solicitors but with a re-mortgage, you either get free legal costs included in the mortgage product or a cashback feature which essentially means that you get your conveyancing arranged for free and when added to the lower interest rate you will still pay less than with an unsecured loan.

The monthly payments don’t need to be capital and interest repayments, it is possible to pay back just the interest or even pay back the interest and some of the capital. This is dependent upon affordability and whether the repayment method is right for you, for which an adviser will be able to help.

The other plus side of arranging a mortgage over an unsecured loan is that once the product term of the mortgage is up (generally 2,3 or 5 years) you can re-mortgage again and take advantage of the current best deal. Now assuming that the work has been completed your property should be worth more than before. This means that when re-mortgaging without raising any more funds the loan to value will be lower and therefore you will be able to secure an even better interest rate than before.

With an unsecured loan arranged by yourself, you will no doubt stick to the same loan for the length of the loan term. You are unlikely to shop around every 2 years to try and find the best deal.

Green Mortgages

A number of lenders are now offering ‘Green Mortgages’ with better interest rates making it more affordable to make energy-efficient improvements to our homes and cut emissions. A great incentive that helps the environment as well as our pockets!

The benefit of using a mortgage adviser for home improvement finance

By speaking to a mortgage adviser, you can be sure that you have got yourself the best possible deal. They will do all the leg work for you; they will search through all the lenders and not only find you the best interest rate but the best overall cost for the term of the loan.

Fortune Financial

Here at Fortune Financial, Hitchin, we offer a bespoke service, treating every customer as an individual. There is definitely no one size fits all approach that you will find by going direct to the bank. Our mortgage brokers listen to you. What do you want to achieve? What are you planning for the future? We will create a bespoke recommendation to help you achieve your goals. The mortgage doesn’t have to be a fixed rate, there are many repayment methods available. The options are almost endless and picking the right product to suit you can save you considerable money and it could mean being mortgage-free much earlier.

Aaron Miles
Specialist Mortgage Broker, Fortune Financial, Hitchin, Hertfordshire