Remortgaging for Home Improvements

Malcolm

Hi, it's Malcolm and Wayne, and today we are going to talk about taking out a remortgage for home improvements. This is one of the typical reasons that people come to us to raise money against the value of their home.

What is the main sort of home improvements that people carry out?

Wayne

Usually, it's because they've maybe got a growing family, so they need a bit of extra space. So, it might be to convert an attic into a new bedroom.

It might be to build an extension onto the back, or if you've already got an extension, maybe make it a two-story, rather than a one-story extension.

Ideas like conservatories as well, maybe you want to add that extra footprint to your property and house your hot tub in. Basically, something that will allow you to expand your family almost.

Malcolm

We've also seen more of, in recent years, things like gyms, home offices, and then people spending more time in the kitchen. So, making modifications to their kitchens and making that more into a living space, as well.

Malcolm

So, a remortgage to raise these funds is usually the right way of doing it. What if the customer is tied in, on some fixed rate, with a current lender?

Are there any other options available to them?

Wayne

Yeah, you can apply to your existing lender, for what is known as a further advance. Basically, all that would happen then is, you have two accounts under your same mortgage.

So, you will have your original mortgage borrowing, and then the extra borrowing, with that lender, at whatever rates they're going to let you have.

Malcolm

Like a sub-account, the problem with that sometimes is that your fixed rates, almost by definition, will end at different times.

So, you might end up with part of your mortgage drifting onto a standard rate of interest into a later date when you can pull the two deals back together by way of possibly remortgage down the line.

If the home improvements planned are more substantial, is it likely that the lender will ask for estimates?

Wayne

Probably, yes. They will undoubtedly want to see that you've taken the appropriate steps. So, for example, if you're building a significant extension, it may well be that you're going to need planning permission.

It may well be that you need building regulations control. So yes, there is much more of a chance that they would need to do that.

Malcolm

Let's say we're building this extension and we need the money to fund it by way of remortgage. We've got a co-mortgage with one lender. We've got this new mortgage waiting for us here, but we've got a mortgage to discharge.

Then we've got a contract to wait to give us some money. How does the cash go around?

Wayne

There will be some legal work involved, and generally, your solicitor will collect that money from the new lender, discharge the old mortgage to the old lender, and whatever balance is left, is then transferred to you from the solicitor.

Malcolm

So, it goes to the applicant then, and then the applicant would then pay-out to the contract. It wouldn't go directly to the contract; it would come to the customer.

Malcolm

If you're looking at making such significant home improvements, don't people consider moving to a bigger home? If so, why don't they do that always?

Wayne

You might have lived in this house for several years, and you like the area, or you like your neighbours.

Your kids have got great social groups, they might go to a great school. You don't want to actually up stakes, but you need that extra room.

So, then that's where something like either remortgaging or making a further advance to give you the extra space that you need without even having to change your life completely.

Malcolm

Also, it'll still be stressful, making your home improvements. It's not as stressful as moving, probably, uprooting your family, but it's expensive.

Essential Stamp Duty to pay too, if you ended up moving as well. Shouldn't people consider getting a personal loan for some of this stuff?

Wayne

By the nature of it, personal loans would tend to be a higher rate and tend to be a shorter term. Here you are investing in a long-term asset.

So, why not then invest or instead borrow, against something that's going to be a long-term asset, that will grow in value and clear that loan over a more extended period.

Interest rates on your mortgage are going to be cheaper than a personal loan.

Malcolm

I suppose if it were a smaller amount, perhaps you'd consider that personal loan, but for a more considerable amount, it tends that the monthly payment on the personal loan would often be more per month than what you would want to pay.

Wayne

Exactly, yes.

So, a remortgage for home improvements is an excellent idea, as long as you get the best deal that's out there. We can help you with that.

Choose the improvements that you're going to do wisely. Some improvements will put more value on your home than others. But it's a less stressful than moving house and can save you money in terms of fees, as well.