Planning a home extension or refurbishment is exciting, but the costs can add up quickly. Whether you’re adding a new room, upgrading your kitchen, or improving your home’s energy efficiency, finding the right way to finance your project is essential. Here’s a guide to help you weigh your options and make a sound financial decision.
How Much Does an Extension or Refurbishment Cost?
Before looking at financing options, it’s important to understand what your project might cost. The price depends on the type of extension or refurbishment you’re planning.
Keep in mind additional expenses like planning permission and professional services (e.g., architects or surveyors). Once you’ve got an estimate, you’ll know how much funding you need.
Financing Options for Home Improvements
1. Use Your Savings
If you’ve built up savings, this is often the cheapest option. Paying upfront means no interest charges or monthly repayments, but it’s important to leave a financial buffer for unexpected expenses.
2. Remortgaging
Remortgaging your home allows you to release equity from the property and increase your borrowing. With UK interest rates remaining competitive, this might be a smart move, especially if your current mortgage deal is nearing its end. However, watch out for early repayment charges or a rise in your monthly repayments.
3. Further Advance
A further advance is borrowing more money from your current mortgage lender. This is different from remortgaging, as it’s treated as a separate loan. Interest rates can vary, so check whether it’s competitive compared to other options.
4. Personal Loans
A personal loan might suit smaller refurbishment projects that don’t require hefty sums. They’re unsecured, so you won’t risk losing your home if repayments don’t go as planned. However, unsecured loans often come with higher interest rates than secured options.
5. Secured Loans (Second Charge Mortgages)
A secured loan uses your home as collateral, enabling you to borrow more than an unsecured loan typically offers. These loans often have favourable interest rates, but remember your property is at risk if you can’t repay.
6. Bridging Loans
For larger-scale projects or interim financing, bridging loans are a short-term solution. These loans are often used for refurbishment when selling a property or managing construction before remortgage completion. That said, they usually come with higher interest rates and fees, so they’re best suited to specific circumstances.
7. Home Improvement Credit Cards
If your expenses are lower – like installing new appliances or repainting – a 0% purchase credit card can be a practical choice. You won’t pay interest for a fixed period, provided you pay off the balance on time. However, if you exceed the interest-free window, rates can be steep.
What Factors Should You Consider?
When deciding how to fund your project, a few key considerations can help guide your choice:
- Interest rates: Compare the rates of all borrowing options. Low interest rates are usually better for long repayment periods.
- Loan terms: Some loans might seem affordable due to lower monthly payments but cost significantly more due to longer repayment terms.
- Your budget: How much can you realistically afford to repay without straining your finances?
- Impact on your property value: Will your extension add enough value to your home to make the investment worthwhile? For instance, adding a bedroom could boost resale value by 10–20%.
- Hidden costs: Don’t forget extra costs like solicitor fees, lender administration fees, or surveyor costs.
Tips to Manage Costs and Borrowing
- Set a realistic budget: Be honest about what you can afford, and include a contingency fund for unexpected surprises.
- Shop around for lenders: Compare terms from mortgage providers, banks, and online lenders.
- Check your credit score: A good credit score will often get you better rates. If necessary, take steps to improve it before applying.
- Seek professional advice: Mortgage advisers or financial planners can help you weigh up your options and identify what works best for your financial situation.
Financing your home extension or refurbishment in the UK doesn’t have to be complicated. With options like savings, remortgaging, personal loans, and even credit cards, there’s a choice for nearly every budget. To make the smartest decision, consider your project size, financial circumstances, and long-term goals. If you’re unsure, professional advice can point you in the right direction. After all, investing in your home can be one of the best decisions you’ll ever make – both financially and for your quality of life.
