With the UK housing market still in recession and a downward cycle, not helped by the lack of mortgage lending and mortgage products available, meaning it’s hard for people to move, never mind still difficult for first time buyers to get on the ladder. Under such difficult circumstances, it’s no wonder many have decided to stay put in and focus on sprucing up their property, whether it be a conversion, extension or just a new coat of paint.
The most common and popular method of raising the dough for home improvements is to remortgage your property. It’s possible to remortgage for more than the house is worth and switch from your current lender to one offering a better deal. If renovations and refurbishments are done shrewdly and in the right areas, expect your house to rise in price quite a bit, though there are always pitfalls to be aware of, we’ve written all you need to know to get started here.
Find out how much you can borrow
First things first to figure out how much you can borrow to remortgage and refurbish or redecorate your home, which is determined from the current value and the estimated value after the improvements are completed, in addition your income and credit rating are also taken into account.
Estimate the cost of the improvements as accurately as possible
When we say get a ballpark figure, it has to be as accurate as possible, with contingency funds in place for any emergencies. The better the budget and more detailed and ready for every eventuality, the better the chance of making your funds stretch and getting the remortgage authorised.
Even what seem small improvements can soon add up to colossal sums, evidence shows from consumer group Which? For instance just to replace one window can cost anywhere from 300-1,000 depending on the windows size. Research from Channel4.com reveals a bathroom fitted by your good self could cost 1,300, getting a professional in will see the amount rise to 3,250, while a new kitchen with fitting costs will set you back 5,000.
So if that doesn’t help convince you to budget for everything, I don’t know what will! Remortgaging is a serious step, so don’t screw it up by running out of money too fast.
With improvements should come added value
Though it’s not always guaranteed that improvements mean instant appreciation in value, the two stand out reasons for improvements are adding value and making a house more comfortable to live in. The latter is easier to achieve than the former nine times out of ten, so it’s important to make sure you’re focusing on what’s best for your family or a potential family than solely looking at the project in cold financial terms.
To drag up some facts and figures to support our case (in this case, research from a 2009 Santander report), spending thousands on refurbishment does not mean your house will increase by the same amount you spent. The research showed only 2,892 would be added to a house after spending 7,700 on a bathroom, or that a 22,600 loft conversion only added 13,038 to a property. To round off out stat attack, whatprice.co.uk found a kitchen adds a maximum of 8% to a home, so for a property worth 150k, you have a budget ceiling of 12k to make a refit financially viable. Of course this is if all work remains in budget, not including falling behind schedule or waiting for parts to arrive (we all know what builders are like!) so that is why staying in budget is imperative.
Shop around to find the best remortgage deal
Obtaining a remortgage deal is the last step to complete, following a solid budget being established and the home improvements being settled upon. These days, the best first step is always to log on to a price comparison website to find the best deal on the market, failing that, searching round the net for a independent/smaller lender might turn up a surprise or two.
The decision will come down to a choice between a tracker or fixed mortgage rate, a fixed rate will offer firm security for a number of years, a tracker rate on the other hand is more flexible, but that can be a vice being linked to interest rates. Other things to consider are will your income and credit rating pass the criteria? Not to mention the Loan to Value (LTV) rate, also check if some remortgage lenders meet the cost of legal fees and valuation. It should be said that at the time of writing, some of the main banks and lenders were beginning to withdraw fixed rate mortgages and remortgages in anticipation of the base rate rising from its historic 0.5% low in 2011. Whether this trickle turns into a flood remains to be seen, but the smart money is on fixed rates becoming harder to obtain.
James writes for Just Remortgages one of the UK’s top sites for the latest remortgage rates and remortgage deals