Remortgaging for Renovations
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Remortgaging for Renovations
Can you remortgage to do renovations? How does this work?
Yes, you absolutely can and we do this a lot for people. It’s one of the most popular reasons to add money to your mortgage. You can do it anytime you like, but most people do when their fixed rate comes to an end.
We find a new lender and we borrow more for home improvements or renovations. That frees up some equity for you in the form of cash. The mortgage completes, you move to a new lender on a new deal and then that cash comes to you. The solicitor sends you the cash on completion.
Then you have the money in your bank to go and do whatever it is you want to do – extensions, decorating. Perhaps it’s £5,000 for new carpets or a lick of paint; or £150,000 to build a big extension on your house – and anything in between.
You can do any form of home improvements with that money, subject to planning and approval. If it’s more structural, the lender might want to know what you’re doing. They always want the house to remain a house.
Do I need to tell my mortgage lender about renovations? What criteria do I need to meet?
It depends. If you’re knocking walls down in the house we need to know if it is going to remain intact. If it’s unaffected structurally, that’s OK. If you’re putting an extension on, generally you’ll build the extension and once it’s finished and watertight, you knock through. That’s also fine. You don’t need to stress about telling the lender that.
But If you’re taking the side of the house off, or you’re knocking it down and starting again, the lender needs to know.
I’ve had people in the past who took the house down and built another one without telling the lender. Thank goodness it went okay. If they heard you’d demolished the house they would want to know where their security has gone. They’ve lent you money based on your property – so knocking it down is a problem for most lenders. You would usually need a more specialist lender for that.
We also need to think about how much equity you’ve got, because a lender will only base the mortgage on what’s there now, not what it’s going to be. You might want £100,000 to build an extension and then the house will be worth a lot more. That’s fine, but the lender would worry that you’ll go and buy yourself a Porsche instead.
There are specialist finance products for a major renovation – taking a bridging loan route. There’s lots of content on our site about that. Briefly, they lend you money in stages and monitor what you’re doing, to make sure that it’s happening.
On a normal remortgage, with a basic lump sum, some lenders would go up to 90% of the current property value. You can increase your mortgage up to that point for the next couple of years, do the work and once it’s all done, the house is worth more.
That mortgage isn’t 90% anymore – perhaps it’s now 75%, because of the increase in value. We may get a better rate on the new mortgage.
Is it a good idea to release equity for home improvements or renovations?
Yes. People release money from their properties for all sorts of reasons, and some may not be a very good idea – such as cars, holidays or weddings. You’re going to be paying for that over a long period of time if you add it to the mortgage.
Home improvements and renovations are different because, while you’re adding on to your mortgage, it’s for the benefit of improving the home. It makes it better for you to live in, and also improves the value of your property.
If you borrow lots of money to turn your perfectly fine kitchen and bathroom into a £100,000 kitchen and bathroom, you haven’t actually added anything to the house. But adding space to the property or improving what’s there will put that value up.
So I don’t think there’s anything wrong at all with releasing money for home improvements. There’s a lot worse you can do with it.
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Can I remortgage for renovations with bad credit?
Yes, potentially. Some high street lenders are a bit more flexible than others, and we can also go way off the high street to some fairly specialist lenders. Whether you would want to pay the rate with that specialist lender is another matter.
As always, it depends how bad your credit is. If you missed a credit card payment two years ago, that’s not going to cause any issues. But if you’ve never paid your credit card and you’ve got a default and then a County Court Judgement, and you’ve not paid your water bill for three years, that’s going to cause us quite a headache. We’d have to go somewhere fairly specialist for that.
Also, is it worth doing? Remember, anything on your credit file disappears after six years. Sometimes it might be better to wait until things have disappeared or got old enough not to be an issue anymore. It depends on your circumstances, your budget and how desperately you need to renovate your property.
Can I remortgage my Buy to Let property for renovations?
Absolutely. The same rules apply. The only difference is the amount of equity you need, because you can’t take a Buy to Let mortgage beyond about 75% of the property’s value.
You always need to keep more equity in a Buy to Let than in a residential property.
Affordability is worked out differently. On a residential mortgage, it’s all about how much your income will allow you to borrow. With Buy to Let, it’s about the rent.
Can you remortgage for renovations? What sort of costs are involved?
Cost-wise, it’s very much the same as any other remortgage. Providing it’s a standard, high-street lender, generally you’re not going to pay a valuation fee. One lender might charge £100, but generally there’s no fee.
There shouldn’t be any legal fees either. The new lender will pay for the basic mortgage swap. Borrowing more doesn’t change that, so that’s fine.
There are few costs involved. We charge a little fee for our process – typically £500, but that depends if you’re an existing customer or not. It’s less for a current client.
What are the pros and cons of remortgaging for renovations?
Ultimately, you get a nicer, bigger house at the end, which is why you would do this. The downside is that your mortgage has gone up. That’s the price you pay for these things. You’ve borrowed more and potentially increased your mortgage rate.
You don’t just wake up on a Monday morning and decide to remortgage to do an extension.
You think about these things, you plan them, you speak to people, you get a quote and then we finance it.
Are there any alternatives to remortgaging for renovations?
So far, we’ve been assuming that you’re coming to the end of your fixed rate. We’re just swapping lenders and going somewhere else to borrow more.
But if you’re partway through your fixed rate and ready to borrow for home improvements, there are a couple of options. One is that we just leave the current lender and go somewhere else – but you’re generally going to have a penalty to leave the current lender. That might not be ideal.
Sometimes your current lender will lend you a bit more – but this is often a more complex process than moving lenders. It’s partly because you may have to do it yourself. You can’t always use a broker to do this. It might not be an option for everyone.
Some lenders are restrictive on Loan to Value, and dealing with lenders is a pain in the neck at the best times.
There is another option, called a second charge. It’s a second mortgage, if you like, that’s still secured on your property. Your existing lender – let’s say you’re with Halifax – they’ve got the first charge. If anything goes wrong, they get their money back first. Then, you might get another lender for some extra money on a second charge.
Now, if anything goes wrong or the property’s sold, Halifax get their money back first and the new lender gets their money back second. You get what’s left at the end. This lender might come in and give you some extra money without you having to pay off Halifax and face the penalty for ending the mortgage early. We’ve actually got a page about second charge mortgages, so enjoy that at your leisure.
Second charges come with fees so it’s not always better than moving lenders. It depends on how the figures stack up for you. But there are alternatives to just paying off this mortgage and taking another one.
What else do we need to know about remortgaging for renovations?
It’s all about comparing the options. We’ve looked at three options there – your existing lender, a new lender or a second lender on top. Deciding what’s best, which lender to go with, how much you can borrow and what your options are – that’s what a mortgage broker is for.
You can compare things yourself, but it’ll take you ages and it’s a pain. So always use a mortgage broker.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
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