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Remortgage for Home Improvement – What you need to know

One of the most common reasons why people remortgage is to release equity to pay for home improvements. But how does this work and what do you need to consider?

What is a remortgage?

Remortgaging is the process of switching your mortgage deal. It involves exploring the market for competitive options and then applying to the new lender for a suitable product.

If you want to increase your mortgage borrowing to release some equity from your property, you need to have reduced the overall debt on your home to a suitable level. That generally means you will have bought the home several years ago, or put down a significant deposit.

One of the benefits of remortgaging for home improvements is that it can be a cheaper way to borrow – mortgage interest rates are typically much lower than a standard home improvement loan or using a credit card.

Who is able to remortgage?

In theory, anyone who has a mortgage can seek out a new deal, as long as they have a good credit rating.

The main focus for a lender is that you don’t exceed a certain loan to value (LTV) when increasing the size of your loan – this LTV is often 90%. For example, if your home is worth £200,000 and you want to release £20,000 (10%) for a home improvement project, you will need at least to make sure that you have a gap of at least another 10% between the size of your mortgage and the property value. So you will need to have reduced your mortgage to a maximum of £160,000 at the start of your remortgage.

You can then borrow £180,000 – covering the mortgage and your home improvements, with a mortgage at 90% loan to value.

In what circumstances can you remortgage?

Remortgaging to fund home improvements is just one reason to seek out a new mortgage deal. There are many reasons why people might decide to find a new mortgage, including:

A fixed-rate deal is ending.

  • Interest rates are predicted to go up.
  • Interest rates have dropped
  • To switch from interest-only to a repayment mortgage – or vice versa.
  • Your house price has gone up so you have more equity
  • To borrow more – to pay off debts or fund a purchase.
  • To get a more flexible mortgage.

What to consider when remortgaging for home improvements

When considering a remortgage to borrow more, the first step is to check that the new mortgage payments will be affordable. Talk to a broker to see what your monthly repayments will be. A mortgage is a secured loan, which means if you fall behind on the payments your property could be repossessed.

Your second consideration is timing. A great time to remortgage is at the end of a fixed rate or discounted deal – if you don’t switch, your interest rate may increase and the mortgage repayments may go up. if you’re in the middle of a mortgage contract, there may be an early repayment charge if you decide to exit before the deal is finished. These fees can reach 15% of the mortgage total, which can be a large amount of money, however, a broker can help you weigh up all the options and will consider alternatives such as a further advance on your existing deal or even a second charge loan if a remortgage is not the most cost-effective solution at the time.

Third, compare your existing mortgage deal to the marketplace. If you’re on an exceptionally good rate, do consider carefully what it might mean to switch.

Finally, weigh up the reasons for the home improvements. It is important to be aware that these may not always make your home more valuable (for example, not all extensions will add value), but they may make your property perfect for you and your family in the longer term and can be more cost-effective than moving home. Adding a bedroom, kitchen or loft conversion can potentially add value, but converting the use of space could cause limitations. It is important you understand your motivation and alternative options.
On the other hand, if your home improvements are intended to make your property perfect for you and your family in the long term, it’s much more cost-effective than moving home.

How can a Mortgage Broker Help?

The team at Lime Tree FS (Cambridge) Ltd will help you explore all the options: from deciding whether home improvements are a good idea to looking at how you could finance your project.

We’ll look at your specific situation and your remortgage options, comparing hundreds of products to get you a great value deal. By working with a broker, you have a wider choice of deals and the best chances of being accepted for a good product. We’re registered in England and fully authorised and regulated by the Financial Conduct Authority. For an initial chat about remortgaging and how we can help, contact our registered office today.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE For our mortgage advice, the standard broker advice fee is £399 per mortgage transaction arranged