How to fund your home improvements

Written by

Luke Hilton

Luke Hilton is a Warrington-based email content writer and designer in the financial services industry. He enjoys mixing analytics and creativity and can usually be found with his head buried in stats, piecing together the patterns that make good content. In his spare time, the drive to figure things out continues with what can only be described as a love-hate relationship with DIY. With a keen love of the outdoors, Luke is usually up a mountain somewhere or in his garden growing his own oasis.

Thursday 6th July 2023

So you’re starting to plan your exciting new home renovation project. You probably have a vision of the end result and you might have already set a budget. But how are you going to fund your home improvements?

In this guide, we share the most common ways to finance home renovations.

1. Use your savings

Saving up to finance your home improvements can be the most cost-effective option as you won’t need to worry about paying any interest costs. Many people view home improvements as an investment, given some projects can increase the value of your home and you could therefore theoretically get back any money you put into the renovation works. This is not guaranteed, though, so it's not recommended to view home renovations as an investment with the goal to get back the money you put into the project.

If you are planning to use your savings, make sure you have enough in the bank to cover your budget – and then some. Research by Toolstation suggests the average home improvement project goes over budget by £3,024. You don’t want to get halfway through a project before realising you don’t quite have the funds to complete it.

Taking thousands of pounds out of your savings can feel like a bold move. You might be worried you’ll deplete your full savings pot by the end of your project. It’s recommended to have enough savings to cover at least three months’ essential expenditure. So it might be a good idea to make sure you have enough saved for a rainy day by the time you’ve completed your home improvements before spending every last penny of your nest egg.

It will take time to save up, and you might need to be patient before commencing your project, but you’ll have peace of mind once your renovations are complete that you don’t have anything further to pay.

2. Take out a home improvement loan

A home improvement loan allows you to borrow up to £35,000 to fund your home improvements. Simply pay the loan back over fixed-rate monthly instalments over a timeframe that suits you, between 2 and 7 years.

When you take out a home renovation loan, you’ll be required to pay interest – which is essentially the cost of borrowing money. We offer competitive rates from as low as 7.4% APR Representative (£7,500-£25,000) which will be added to your monthly repayments.

A home improvement loan can be a suitable solution for those who:

  • Don’t quite have enough in their savings pot
  • Are uncomfortable spending such a large amount of money upfront, and would prefer to keep their savings intact
  • Would simply prefer to spread the cost over more manageable monthly chunks
  • Have found their home renovation project going over budget, and need to find a way to top-up their funds relatively quickly

Personal loans are unsecured, so you don’t need to put up collateral and therefore your valuable assets cannot be seized if you don’t keep up with your repayments. That said, late or missed payments will be recorded on your credit record which could impact your ability to borrow in the future.

3. Get a second charge mortgage

There is also the option to get a secured loan against your home, also known as a second charge mortgage. Put simply, you’ll keep your existing mortgage ‘as is’, and take out a separate additional mortgage with a different lender. You’ll then pay both mortgages back over fixed-rate monthly instalments and, as they’re totally separate products, you’ll likely be paying different interest rates for each one.

This could be a good option if you’re happy with your existing mortgage deal, but it’s not cost-effective to remortgage (perhaps due to early repayment charges).

A secured loan potentially allows you to borrow a larger sum of money over a longer period of time, as the loan will be secured against your home. This means that if you don’t keep up with your repayments, the lender could repossess your house.

Read our guide to find out the difference between unsecured and secured loans.

4. Use a credit card

If you’re only considering minor home improvements, using a credit card could be a suitable option. Though your credit limit is likely to be lower compared to the amount you can borrow using a loan or mortgage product, you may be able to access the funds you need quicker when you use your credit card. If you already have the card set up and ready to go, you’ll be able to buy what you need when you need it.

Another advantage of using a credit card is you could be protected if the work you’ve done isn’t satisfactory or the company you were using goes bust and so the work never gets completed. You may be able to claim the money back from the card provider, giving you added peace of mind.

It’s a good idea to try and find a credit card that has a 0% introductory rate, so you won’t need to pay interest on the money borrowed provided you pay it back in full before the interest-free period ends. Do make sure you’re able to pay the balance off in time, though, or you could be hit with high interest fees.

Take a look at our guide on the difference between personal loans vs credit cards to help you make a more informed choice.

5. Add to your existing mortgage

If you’re happy with your current mortgage provider, you may wish to request to borrow more money from them.

This option is particularly suitable for those who’d prefer to stick to a provider they’re comfortable with. You may also be only a few years into a long fixed-term contract, in which case early repayment charges could be a prohibitive factor when it comes to switching lenders.

Do keep in mind that your mortgage provider may charge you a higher interest rate on any additional borrowing. So, even if you have a great deal on your current mortgage, the same rate won’t automatically apply to additional money you borrow.

6. Remortgage your home

When you remortgage your house, you’ll transfer your mortgage from one provider to another. You may need to pay fees to leave your current lender. However, if you’re coming up to the end of a fixed-rate period with your current lender, this may be one of the best times to move lenders as you will avoid paying early repayment charges.

You may be able to find a company who’ll lend you the money you need to pay off your home’s mortgage plus home improvement costs. Of course, you’ll need to pay interest on the additional amount you’re borrowing too which means you’ll pay more interest overall.

You may be impressed by the interest rate of remortgaging compared to taking out a loan but do keep in mind that you’ll likely have a much longer repayment term. This means you’ll be paying interest – albeit at a potentially lower rate – for a longer amount of time. Therefore, you may end up paying more interest in total.

7. Release equity

If you’ve been paying off the mortgage on your home for some time and you’re 55 or over, you could release equity to fund your home renovation project. This is sometimes known as a ‘lifetime mortgage’. It allows you to release some or all of your home’s equity as a tax-free lump sum. You’ll still own your home and won’t need to repay your lender until the homeowner dies or goes into care.

Equity release will naturally limit the amount of inheritance available, as the loan (plus interest) you owe is repaid by selling the property once the owner has died or entered long-term care. It’s recommended to speak to a qualified financial adviser before making a decision on releasing equity.

Consider all your options carefully before making a final decision

Borrowing money, whether you take out a loan or remortgage your property, will increase your debt-to-income ratio. You must therefore do your research carefully and ensure debt repayments will remain affordable. You may find it useful to speak to a qualified financial adviser who can provide in-depth advice based on your individual circumstances.

Don’t spend more than you can realistically afford on renovation work solely to try and earn more money back following the sale of the property. While some home renovations undoubtedly do add value to your home, this is not guaranteed. It’s far better to take on a home improvement project that will enhance your home and improve your enjoyment of the space. 

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Whether you’re thinking about instructing a contractor or you’ve just moved into your first property and you’re ready to renovate yourself, you’ll find our Hints and Tips section packed full of insight.

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