Having spent more time inside than ever before during the pandemic, home improvements have been high on the agenda for many. In fact, Brits spent a colossal £21bn on home renovations in 2021.
While such projects are usually born of a desire to make your house a nicer place to live or to increase its value, and can be planned for well in advance of needing the funds, sometimes they’re required out of almost instant necessity. The need to renovate part of your property can occur without notice, such as urgent repairs like a leaking roof or broken-down heating system. This can make things difficult financially if you’ve insufficient savings for such an expenditure.
But fear not, you have a range of financing options available to you depending on your individual circumstances. Here are four ways you could borrow the money you need for urgent home renovations.
1. A second charge mortgage
Second charge mortgages are designed specifically for homeowners who already have a mortgage on their property. As explained by loan.co.uk, second charge mortgages work by letting you use the percentage of the property you own outright (the equity) as collateral to borrow more money.
Using your home as collateral means that, should you fail to make the required repayments, the lender does have the ability to sell your home in order to recoup its money. However, as the lender has this added layer of security, they’re usually happier to lend larger sums of money than would be possible with an unsecured loan (provided you have enough equity in your property), offer lower interest rates and even extend the repayment schedule to make things easier and more affordable for you. Many second charge lenders will also accept applications from people with lower credit scores too, owing to the protection they are afforded by the security over the borrower’s property.
It should be noted that second charge mortgages are entirely separate from your original mortgage, so have no effect on your existing repayments.
Best suited to:
- Those with a low-interest rate mortgage, where remortgaging would lead to a higher rate.
- Homeowners who are tied into an existing mortgage and would face high penalties for exiting that arrangement with their lender.
- Homeowners with a high amount of equity built up in their home.
2. Remortgaging your property
Remortgaging your property involves taking out a new mortgage and using some of the funds to pay off the previous one. You can either remain with your current provider or switch to a different one if you can get a better deal.
Many people remortgage to reduce their monthly repayments, but others do so to release some of the equity they’ve built up in the home, particularly if its value has increased since they bought it. The level of equity you own increases as you repay your mortgage, thus reducing the outstanding debt, but it will also go up if the property increases in value.
For example, say you bought a property for £250,000 five years ago with a £50,000 deposit, meaning you owed £200,000. Since then, the mortgage you owe has been reduced to £150,000, while the property value has increased to £300,000. As a result, the equity you have has risen from £50,000 to £150,000.
One option when remortgaging is doing so for a larger amount than you owe, as this lets you unlock cash that’s tied up in your property. So, in the above example, if you chose to remortgage for £175,000, you could repay the existing £150,000 mortgage and release £25,000 to spend however you like. These funds can then be put towards home improvements.
Best suited to:
- Those with a decent amount of equity in their home, e.g. those whose property has increased in value.
- Homeowners who are looking to release significant funds, such as those planning major renovations.
- Individuals with a good credit rating — those without this may not be able to remortgage their property.
3. A personal loan
A personal loan simply involves borrowing money that you’ll repay, with interest, over a set period of time. Unlike secured loans, they don’t require any collateral (like your house), though they tend to have higher interest rates as a result, offer lower amounts and much shorter repayment times – usually up to five years. Depending on your circumstances, you can usually borrow up to £25,000. Larger loans are available, but often require special circumstances, such as being a long-term customer of the bank you’re borrowing from or having a near-perfect credit rating.
Almost anybody can apply for a personal loan, though those with good credit scores are more likely to be accepted. You’ll also need to be able to demonstrate some kind of income, and many lenders like for you to have been employed for at least six months beforehand. Regardless of your circumstances, the lender will want to be sure that you’ll be able to make the repayments.
Best suited to:
- Those who need money quickly.
- People with good credit scores, as you’ll get better deals.
- Individuals requiring smaller sums, such as those making smaller home improvements.
- People who don’t want to use their property (or another valuable possession) as collateral.
4. A 0% purchase credit card
A 0% purchase credit card can be another useful way of financing smaller home improvements, as long as you use it carefully and secure a credit limit (the maximum amount you can borrow at one time) that suits your needs. These cards offer a 0% interest rate on purchases for a set duration of time, which can help to save you some interest and help to spread the cost of home improvements over a number of months.
That said, the 0% interest rate is usually an introductory promotional offer. Once the initial interest free period ends, which depending on your circumstances like income and credit rating can be between a few months and three years, any remaining balance will be charged at the card’s standard rate – commonly around 20% to 22%. It’s therefore crucial that you clear your balance before the 0% deal ends. It’s also vital that you’re able to pay on time each month otherwise, you could lose the deal and get charged at the full interest rate much earlier.
It’s also worth noting that the initial credit limit that card providers offer customers tends to be much lower than would be available for personal loan customers.
Best suited to:
- Someone with a smaller project who needs less money and can pay it back before the high interest rates come into play.
- Homeowners who want extra security when purchasing items.
- Those who want rewards from the card, like cashback.
Four ways to pay for urgent home renovations if you have no savings is a featured post