Blog written 14/09/2023
Financing home improvements. Do you dream of extending or improving the layout of your current home or have found a house you would like to buy with huge potential to improve?
We can help you to understand the different mortgage options to finance your project and advise you on which option will suit you best.
Financing home improvements: What are the main mortgage options?
- Conventional mortgage
With a conventional mortgage, you can borrow up to 95% of your home’s current value. The lender will not take account of how much the house will be worth after the work is complete. This can be the main disadvantage for those who don’t have enough equity in their home.
Please see 2 examples below for someone who wants to borrow at least £100,000 for a 2 storey extension with a home worth £300,000 now:
Example One (who this option may suit):
| Current value of home: | £300,000 |
| Maximum allowed (95% of value): | £285,000 |
| Current mortgage balance: | £100,000 |
| Funds available: | £185,000 (up to) |
Example Two (who this option does not suit):
| Current value of home: | £300,000 |
| Maximum allowed (95% of value): | £285,000 |
| Current mortgage balance: | £220,000 |
| Funds available: | £65,000 |
- Major renovation mortgage
With a major renovation mortgage, the lender uses the value of your home on completion of the work, which is generally a larger figure.
In the example above, following completion of the extension, the house may be worth £400,000. This would allow the person in example 2 to borrow an increased amount using a major renovation mortgage.
A major renovation mortgage is released in stages, similar to a self-build (link to self build page of website). If you already own the property, the first stage release will include the funds to pay off your current mortgage. If you are purchasing a house, the first stage release will be the amount required to purchase the property. You will still require a deposit.
What happens when the work is complete?
For a conventional mortgage, at your next mortgage review, you can remortgage using the new, increased value of your home which may allow you to secure a better interest rate.
For a major renovation mortgage, you will still have had an initial promotional deal and may have early repayment charges if you leave the deal early. At the appropriate time we can advise you on your remortgage options to revert back to a conventional mortgage.
If you require any further information or advice on home improvement mortgages, please contact us.
https://onerooffinancial.co.uk/contact/
Your home may be repossessed if you do not keep up repayments on your mortgage
The information contained within this blog was correct at the time of publication (14/09/2023), and is subject to change.
