How to use your mortgage to fund a renovation project

Turning your property into your dream home might mean taking on a renovation project. If you’re looking for a way to fund your goals, you might be able to borrow more through your mortgage. Read on to find out more.

A renovation project could make your home more efficient, update the space so it better suits your family, or simply make it a more enjoyable place to live.

Every year, thousands of families across the UK update their homes in some way. Indeed, according to a report from Houzz, 48% of homeowners carried out some work in 2023.

While you might be able to tackle some projects on your own with a small budget, others can cost thousands of pounds. On average, those carrying out work in 2023 spent £17,000, but the top 90th percentile forked out a huge £200,000.

So, whether you’re thinking about updating your bathroom or would like to add an extension, deciding how you’ll cover the cost is likely to be important.

Your options if you want to borrow more through your mortgage

There’s more than one way you could borrow more through a mortgage to fund a home renovation project.

Borrow more through your current mortgage

You may be able to ask your current mortgage lender if you could borrow more money through your existing mortgage deal if you’re happy with your current provider and the interest rate you pay.

Borrowing more through your mortgage will increase your repayments and the total amount you pay in interest over the full mortgage term.

Take out a second mortgage

You could keep your existing mortgage and find another lender who will give you a second, separate mortgage. This is known as a “second charge mortgage” and it’s secured against your home.

You’d need to make repayments on both mortgages at the same time. The amount you can borrow through a second mortgage is usually dependent on the amount of equity you have in your property. Often, the interest rate will be higher when compared to your existing mortgage.

Remortgage

A remortgage would transfer your existing mortgage to another lender, and it may allow you to borrow more depending on your circumstances and the amount of equity you hold in your property.

You should note that if you have an existing mortgage deal in place, taking out a new mortgage might mean you have to pay an early repayment charge. This fee is often a percentage of your outstanding mortgage agreement, so it could be substantial.

In addition, the interest rate you pay on your mortgage could be different if you take out a new deal. So, assessing the effect it could have on your household budget is important.

Using a mortgage to fund a home improvement project isn’t always the right option

While borrowing more through your mortgage is an option, it might not be the right solution for you. It’s important to weigh up the pros and cons, and understand how it might affect your finances.

For example, using your mortgage might not be right for you if:

• You have a fixed-rate mortgage deal, as you’ll usually have to pay an early repayment charge to switch, which could outweigh the potential benefits. In addition, if you locked in an interest rate and they’ve since increased, the cost of borrowing could be much higher if you take out a new deal
• You have a high loan-to-value ratio, lenders might be reluctant to allow you to borrow more. If you can borrow more, you might find the interest rate you pay is higher because lenders may view you as a greater risk.

If you decide increasing your borrowing through a mortgage isn’t the right option for you, but you want to go ahead with the project, there might be alternative solutions. Here are four options you may want to consider:

1. Secured homeowner loan: This type of loan could allow you to borrow larger sums at a typically lower rate than an unsecured loan. However, you’d be using your home as security. So, if you couldn’t meet repayments, your home could be repossessed.
2. Unsecured loan: An unsecured personal loan allows you to borrow money without putting up any collateral, such as your home. Lenders will assess your credit history and ability to meet repayments when reviewing your application. The amount you can borrow is usually lower when compared to a secured homeowner loan, so it might not be suitable if you’re taking on an expensive project.
3. Credit card: If the cost of home improvements is relatively small, a credit card may be an option. If you have a credit card that has a low interest rate or a 0% introductory offer, it could be a cost-effective way to borrow money. However, you should be aware of the potential cost when an offer ends or that the interest rate might rise.
4. Savings: Finally, if you have the funds to do so, using your cash savings or other assets could be a useful way to finance a home improvement project without increasing your borrowing.

Before you proceed with a project or borrow money, you should ensure you’re comfortable with the effect it could have on your finances, including your ability to make repayments.

Contact us if you’d like to discuss borrowing more through a mortgage

As a mortgage adviser, we could help you assess your options of borrowing more through a mortgage to support your home improvement goals. We could work with you to identify lenders that might meet your needs and understand the potential costs. Please contact us to talk about your project.

Read more blogs on similar topics here:

• 1 in 5 first-time buyers are choosing a longer mortgage term to balance costs
• 5 fantastic reasons to work with a mortgage broker

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only. Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Think carefully before securing other debts against your home.