Paying for home improvements and repairs

“Improve, don’t move” is on the cards for many homeowners in 2022 who need more space or want to update their home, but can’t justify the cost of moving.

You might want an extra room for entertaining friends – or grandchildren – or a shiny new kitchen or bathroom.

Equally, you might need to make some changes to your home out of necessity such as repairing a leaky roof or replacing a boiler or adapting your home to help with getting around more easily. You might want a ramp or handrails for the front door, a stairlift and a walk-in bath.

You will need to finance any home improvements with borrowing - unless you have a large savings pot.

Loft conversions cost from around £20,000, but are often a lot more, depending on the size, spec and type of conversion. A mid-range kitchen can cost between £10,000 - £20,000, while a new bathroom can cost about £5,000.

The good news is that as well as making your home a nicer place – you are making an investment, which means you can increase the value of your home for when you do come to sell.

Here are some of the main options for financing any kind of home improvements:

1. Increase your current mortgage

Often the best way to pay for home improvements is by remortgaging, which can release equity and allow you to borrow at a low rate of interest.

The additional funds may not be offered at the same rate as the rest of your mortgage, and tie you in for a certain period.

2. Equity release

Equity release schemes allow the over-55s to borrow against the value of their home. The number of homeowners releasing equity from their property between January and March rose by over 20% to a new quarterly high of 23,395, according to the Equity Release Council.

The council reported that the average loan size grew 6% in the 12 months ending March 2022 as people take advantage of large gains from rising house prices.

An equity release loan is repaid when the house is sold and the owners move into care, or pass away, unless you opt for a plan where you make monthly repayments.

Shopping around is essential because providers levy different interest rates. It’s crucial to get a handle on the charges involved.

3. Take out a second charge mortgage

It is possible to take out a second mortgage on your home to raise cash. So-called second charge mortgages give you a lump sum, which you repay alongside your existing mortgage over a fixed term. The second mortgage is usually taken out with a different lender from the original mortgage and the loan is secured against your home.

They are suitable for homeowners who don’t want to remortgage if their existing mortgage is a good deal and it does not make sense to refinance.

The second charge mortgage market has been rising gradually. In March, the amount borrowed increased by 53% and the volume of loans approved grew by 42%, compared with the same period in 2021, according to the Finance and Leasing Association. This marks the highest level since September 2008.

4. Apply for a personal loan

Though interest rates are rising, rates for borrowing via a personal loan are less than 3%. According to Moneyfacts, the very cheapest personal loan charges around 3.7% for a loan of £5,000, which would cost £146.82 per month for 36 months, with the total amount repaid at £5,285.52. Make sure you use a comparison website to find the lowest rate rather than approaching your own bank which might not offer the best deal.

5. Use a 0% purchase credit card

Using a zero interest “purchase credit card” spreads the cost, with an interest-free period on spending - currently between 15 and 17 months, according to Moneyfacts.

It’s unlikely that you will be able to use a credit card to pay a builder, but it will be useful for buying all the fixtures and fittings, domestic appliances and anything else you can buy from a shop that will be needed for your improvements.

Make sure you are able to repay the full amount before any interest-free period offer is up. After this, the rate reverts to around 21.9%.

Paying with plastic means you get added consumer protection. Card companies are jointly and severally liable for goods and services above £100 but below £30,000 under Section 75 of the Consumer Credit Act.

6. Raid your savings

If you’re lucky enough to have a decent savings pot, by all means dip into it to pay for home improvements. But don’t leave yourself with nothing in the bank. The ever-important rainy-day account must remain topped up.

Planning on updating your home? Read our tips for funding home improvements.