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  1. Blog
  2. How to fund home improvements
Advice about properties
25 March 2022

How to fund home improvements

Sam Edwards
Writer
How to fund home improvements

Table of contents

  1. 1. Spend your hard-earned savings
  2. 2. Take out an unsecured personal loan
  3. 3. Take out a secured loan
  4. 4. Use a 0% purchase credit card
  5. 5. Remortgage your home
  6. 6. When is remortgaging to renovate a bad idea?
  7. 7. How much do home improvements increase value?
  8. 8. How to build home equity with home improvements

Whether you’re looking to build a new extension or you’re thinking of ways to make your bathroom a bit brighter, it’s no mystery that home improvements occupy the minds of thousands of homeowners. It makes sense. Living in the same property day in and day out tends to give you a better understanding of the nuances of your living space.

Unfortunately, unless you have a load of cash lying around, home improvements can be heavy on the purse. Developments of any kind can set you back hundreds to thousands of pounds.

To help you make those much-needed home improvements, we’ve put together some of the best ways to finance them.

1. Spend your hard-earned savings

You might be apprehensive about using your savings. When you spend your money, it’s gone - along with all those other possibilities that you attached to that flushed bank account.

But it’s not all doom and gloom.

In fact, spending your savings on home improvements (especially the right kind of home improvements) can be a worthwhile investment. Your home is likely your largest financial asset. Should the time eventually come to move, any additional work you’ve put into your property can pay dividends. Some home improvements can add thousands of pounds to the market value of your home.

Let’s say, hypothetically, that you have £5000 in your savings account. With £5000, you can finance several home improvements that may have a significant impact on your property’s market value.

Redecorate

Painting and redecorating your home can add up to 5% to your property’s market value. That means, if your home is valued at £280,000, you could potentially get an extra £14,000.

The great thing about painting and decorating is they’re fairly inexpensive when compared to more expansive home improvements. Householdquotes.co.uk has claimed that the average cost of paying someone to paint the interior of a 3-bedroom property lies between £2,100 to £3,100. Luckily, you could do it yourself for much cheaper. Cans of paint can cost anywhere from £20 to £60 each, and rollers are also fairly inexpensive.

Decking

A well-designed wooden decking can be more than just a pretty addition to your garden area. Among its many benefits (a functional leisure area and one of the least time-consuming home developments), one of the best is that it’s affordable. According to Homehow.co.uk, 15m² of hardwood decking will only set you back £2200.

What’s more, financial websites like Property Price Advice and Online Mortgage Advisor both state that decking can add up to 10% to your property’s market value. Even half of that amount is a phenomenal return on investment.

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2. Take out an unsecured personal loan

While borrowing money with a credit card is ideal for smaller developments, the big kinds that cost upwards of £10,000 (landscaping and loft conversions) aren’t really feasible. It’s these types of developments that a personal loan can handle.

How do you take out a personal loan?

Taking out a personal loan isn’t difficult - loans are one of the primary benefits of banks and credit unions - but you do need to shop around a bit. Like your mortgage, personal loans come with their own interest rates. Luckily, the loan market is very competitive, so you should have a lot of choice.

‘Unsecured’ loans aren’t connected to collateral. This means lenders are unable to take your assets if you default on the loan. Luckily both personal loans and home improvement loans are usually unsecured.

One thing that could restrict your ability to get a unsecured loan however, is your credit report and rating. A good credit score will help you get the best deals while a poor credit score will limit your loan choice. To ensure you make back regular repayments, it’s imperative that you have enough money, and that you have a payment plan in place.

Remember that unsecured loans come with high interest rates and low borrowing limits. Depending on your circumstances, most lenders will only lend you up to £50,000.

3. Take out a secured loan

Big renovations, landscaping work, and loft conversions tend to be in the deep financial end of home improvements. If an unsecured loan isn’t enough to get the work started, a ‘secured loan’ might be able to.

While unsecured loans can only lend you up to £50,000, secured loans can take you up to £100,000. However, secured loans are secured against collateral - usually your house or car. That means if you fail to make repayments, your lender has the right to take your assets. Obviously, this is quite the risk.

Though you stand to potentially forfeit your property or car, there are other benefits to secured loans. They tend to be more flexible and come with lower interest rates than unsecured loans. So if your credit history isn’t the best, you might still be able to get a secured loan.

4. Use a 0% purchase credit card

One of the primary functions of your credit card is to purchase items ‘on credit’. Ideal for small developments, borrowing money with a credit card will allow you to make those smaller purchases, like building a shed, getting reliable insulation for your walls, or painting the house.

Credit cards with an introductory 0% rate are good choices for these types of purchases. They help you spread the cost of your home improvements over the year. Another great reason to use a credit card is that if the work you ordered remains incomplete (as a result of the company going bankrupt or the work being faulty), you can claim the money back.

Make sure you clear your balance before the 0% deal ends and remember to set up a monthly direct debit. You don’t want to miss any repayments!

How to fund your home improvements

5. Remortgage your home

The last option available to you is remortgaging your home. A lot of people who make big changes to their properties (loft conversions or extensions) do so by remortgaging.

There are three main factors that dictate whether you can borrow extra money when remortgaging. These are:

1. How much your home has grown in value

If your property’s value has increased by £20,000 in the four years you’ve owned it, the chances are you will have greater borrowing power when it comes to remortgaging.

2. The amount of equity you have in your home

How much of your home you own will greatly affect the amount you can borrow against it. The more you own, the higher your equity and borrowing power.

3. Your current financial situation

The stability of your current financial circumstances also affect your borrowing power. If your earnings, employment and credit rating are all up to scratch, you will be able to remortgage for extra cash.

Is it cheaper to remortgage?

Yes, it’s generally cheaper to remortgage your home. Since remortgaging reduces your loan size and interest rate, it can be seen as an effective way to save money on your monthly repayments.

It’s important to note that if you’re thinking about remortgaging your home, you should look out for exit fees and early repayment charges. If you’ve not finished your fixed term, you may be charged for leaving your loan.

When is remortgaging to renovate a bad idea?

While remortgaging your home can be a useful way to fund home improvements, there are times when it’s simply not worth it.

1. If you’re locked into a long-term fixed rate

As mentioned previously, exit fees and early remortgage repayments are some of the biggest risks of remortgaging - and if you’re locked into a long-term fixed rate mortgage you might find it difficult to switch without incurring them.

If you find yourself in a long-term mortgage, the best choice you have is to either wait until the end of your term, or explore some of the other options above. Exit charges do get cheaper as time goes on, but ideally you don’t want to pay anything on top of what you spend on home developments.

2. If you have a high Loan To Value mortgage

If your mortgage has a LTV of 90 to 95%, you’ll have a hard time building up enough equity to release the extra cash necessary to finance your home developments. As a result, you may struggle to borrow more money if you decide to remortgage.

Again, your best option is to wait until you’ve paid back more of your mortgage and find an alternative source of funds for your projects.

3. If you’re thinking of selling your home soon

If your sole objective is to increase the value of your home with improvements ahead of its sale, you may be better off leaving your home as it is. If you’re looking to sell within a few years, spending a chunk of money on renovations might not give you the bump in market value you seek. You should always be prepared for that risk.

How much do home improvements increase value?

If you’re thinking about developing your home, you may be wondering about the long-term financial benefits. To give you a general idea, we’ve researched some of the most popular in the table below:

ImprovementTypeDifficultyAverage costValue added
Improve front gardenExterioreasyfree5%
Paint exteriorExterioreasy£1,0002%
DeclutterInterioreasyfree5%
Improve natural lightInteriormediumvaries5-10%
CleanInterioreasyfree5%
Maximise storage spaceInteriormedium£15-£1002%
Proper stagingInterioreasyfree10%
RedecorateInteriormedium£1000-£30005%
Get planning permissionExtensionharder£206-£46210%
Add a conservatoryExtensionharder£5000-£75005%-7%
Loft conversionExtensionharder£36,50020%
Add deckingExteriormedium£2,20010%
Remodel bathroomRemodelmedium£3,0004%
Remodel kitchenRemodelmedium£8,0004%
Landscape gardenExteriormedium£1,20020%
Add a shedExtensioneasy£500-£12001-2%
Add a garageExtensionharder£21,00017.67%
Improve energy efficiencyEnergy efficiencymediumvaries14%
Update boilerEnergy efficiencymedium£1000-£300014%
Add double glazingEnergy efficiencymedium£250-£400 per window14%
Add new insulationEnergy efficiencyharder£100-£100014%

For more information, check out our guide, ‘How to add value to your home’.

Remember: Every property has a ceiling price. This is the maximum price a buyer would consider spending on a home before they are likely to purchase something 'better'. This usually means something larger, with more land, or in a more desirable location.

How to build home equity with home improvements

Any improvement that adds reliable value to your home will help build equity. Equity is the value of your share or interest in your home. By making worthwhile improvements to your property, you can increase the difference between its market value and the money you owe your mortgage lender.

Some improvements are more reliable than others in building home equity, but they vary considerably in cost. Building a wooden decking or converting your loft into an en suite bedroom are two developments that differ massively in cost, but both are likely to build equity with your home (loft conversion adding significant value, while decking adding less).

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