Using property equity to finance improvements can be an option, but it involves considerations
Home renovations can transform a property, whether by adding space, increasing efficiency, or modernising key rooms. For many households, the challenge is securing the necessary funds. One option is to remortgage, releasing equity built up in the home to cover renovation costs.
This approach can provide access to large sums at relatively low rates compared to unsecured borrowing. Yet, as with any major financial decision, it requires careful consideration of affordability, risks, and long-term implications.
How remortgaging for renovations works
Remortgaging involves replacing an existing mortgage with a new one, either with the same lender or a different provider. If the property’s value has increased or if substantial repayments have already been made, the equity might enable additional borrowing. The lump sum released can then be utilised for improvements such as extensions, kitchen refits, or energy efficiency upgrades.
The benefit is that mortgage rates are often lower than those linked to personal loans or credit cards. Spreading the cost over the mortgage term can also make repayments more manageable. This makes remortgaging an attractive choice for projects needing substantial funding.
Benefits of investing in the home
Using a mortgage to finance renovations can be sensible when the work boosts the property’s long-term value. Improvements such as loft conversions, new bathrooms, or energy-efficient heating systems can increase resale potential and lower ongoing costs. In such cases, the borrowing not only funds lifestyle upgrades but also enhances the property’s status as an asset.
Another advantage is that renovations can make a home more suitable for changing family needs. Instead of moving to a larger property, some households remortgage to fund extensions or adapt layouts, which can be more cost-effective than the expenses of moving.
Risks and trade-offs
The main risk of remortgaging for renovations is the rising debt. Even if repayments are manageable at first, taking on more debt over decades can greatly raise the overall cost of the project once interest is included.
There may also be fees to consider, such as arrangement charges, valuation costs, and potential early repayment penalties on the existing mortgage. These can decrease the overall advantage of remortgaging compared with other financing options.
Affordability remains a key factor. Lenders will still conduct comprehensive checks to ensure the larger mortgage is sustainable. If income is uncertain, or if the project does not significantly increase the home’s value, the long-term balance may not favour the borrower.
Alternatives to explore
Remortgaging is not the only way to finance home improvements. Additional borrowing from the existing lender, secured loans, or personal loans may provide greater flexibility, depending on the project’s scale. For smaller renovations, using savings may be more suitable than increasing long-term debt.
Each option has different repayment terms, costs, and risks. The best choice depends on the scale of the work, the household’s financial position, and the need to keep flexibility for future borrowing.
Weighing up the decision
Remortgaging to fund renovation costs can be an effective method to finance significant improvements, especially when the work increases the property’s value. It offers access to larger sums with potentially lower rates than other forms of borrowing. However, it also extends mortgage commitments and could increase the total cost over time.
The decision is less about whether remortgaging can provide funds, which in most cases it can, and more about whether it is the most suitable way to finance the project. Balancing affordability, long-term objectives, and alternative options helps ensure that the borrowing benefits both the property and the household’s wider financial security.
