Remortgaging for Home Improvements

Can I remortgage my Buy to Let for home improvements?

Yes, certainly. With Buy to Let, the idea is that the property generates income – and that rental income is what typically dictates the amount of borrowing that’s available.

While your income and outgoings will be taken into account on a Buy to Let, primarily the lender wants to check that the rental income is sufficient to service the mortgage. So, in this case, will it cover the new higher mortgage to finance home improvements? If the answer is yes, you could do it.

Your advisor will look at the rental income and make sure that a new mortgage would be self financing, and that the lender will be comfortable with the additional borrowing.

You could also raise money to do home improvements from a Buy to Let property to improve a different property in your portfolio – or indeed a residential property.

How much can you remortgage for home improvements?

There is not a defined limit, because lenders all have different criteria. That’s the job for somebody like me, to guide you to the right provider for your purpose. The limit is more about how much equity is available in the property.

Is it a good idea to remortgage for home improvements? What are the pros and cons?

Whenever you borrow money under any circumstances, you need to think about whether it is the right solution for you as an individual.

Remortgaging for home improvements could be a cost-effective way to go, because a mortgage is typically longer than other finance options. A personal loan would be repayable over a much shorter term than a mortgage might be.

A home improvement remortgage could reduce your monthly outgoings, because you could stretch the repayments over a long term. Also, mortgage rates are often lower than on a personal loan.

You need to look at the advantage it brings you. When I speak to a person looking to raise funds, we will talk about the works they’re planning and how long they’re going to stay in the property. If you’re going to spend a substantial amount on a property, but actually, you’re only likely to be there for another couple of years, will that be good value?

You need to consider whether or not you’re going to actually recoup that money. But generally speaking, if you’re improving the home as an alternative to buying another property, and you’re going to stay there for a good length of time, it could be a very good option.

The downside is that you are reducing the amount of equity you’ve got in your property. It could be that you’re raising the mortgage above a certain Loan to Value. If you have 40% equity in the property, you have a 60% Loan to Value.

But raising a substantial amount might take your equity down to 20%, which could potentially mean a higher mortgage rate. So these factors need to be taken into account.

Your monthly mortgage payments will also increase if you borrow extra money. So it’s something that needs to be given careful consideration on a case-by-case basis. By going through those details with an adviser, you could make an informed choice about what’s right for you.

Are there any alternatives to remortgaging for home improvements?

There are, and advisors should be mindful of the pros and cons of any decision with a client. You may be able to get 0% credit on a kitchen, for example. If that’s affordable, often those finance agreements will be gone in five to seven years which could be a workable option.

But if you’re getting a few things done at the same time, such as combining your kitchen and dining room into a single room, it’s not so suitable because there will be more work to fund.

There are also personal loans. and for larger expenses there are also secured loans which sit alongside the mortgage on your property. Sometimes there’s an option there, but it tends to be more expensive. There are certainly a number of options to look at apart from mortgages.

What else do we need to consider with a remortgage for home improvements?

An important consideration is your existing mortgage product. If you’re in a fixed rate with your existing provider and that interest rate is good – because rates have increased in the last couple of years – we wouldn’t jump to swap mortgage providers altogether.

There is an alternative route here, called a further advance. We could approach your existing lender for additional funds on top of your existing mortgage. So it’s not always around swapping lenders – you could get additional funds from your existing provider.

That way you could leave the current mortgage in place, which may be on preferential rates compared with today’s. That’s why it’s so important to get good, solid advice before you do anything.

There are quite a few things that a good advisor would look at with you. We would make sure that you know exactly what the options are, what it looks like on a monthly basis, and how much it would cost over a period of time as well. We make sure that you don’t incur any unnecessary costs due to a lack of planning.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.

The FCA does not regulate some forms of Buy-to-Let mortgages.