Home improvements can greatly enhance the comfort, value, and energy efficiency of your home. Whether you’re adding a new room, upgrading your kitchen, or improving energy efficiency, financing these changes requires careful planning.
Below are some of the best ways to finance home improvements, along with examples of costs, potential requirements like planning permission, and considerations for loans and grants.
Home Improvements Can Add Value
According to the Royal Institution of Chartered Surveyors (RICS), adding an extension or converting a loft can increase the value of your home by up to 20%. For example, a £30,000 extension on a property valued at £300,000 could raise the value to £360,000, making it a good investment in the long term.
Personal Savings
Using personal savings is often the cheapest way to fund home improvements since there are no interest payments involved. However, it’s important to ensure you still have enough savings left for emergencies. A bathroom renovation, for example, can cost between £3,000 to £7,000, depending on the quality of materials and the scope of the work. While saving for this project can take time, it avoids any debt.
Personal Loans
Personal loans are unsecured, meaning they don’t require your home as collateral. They’re a good option for smaller projects such as installing a new boiler or upgrading a kitchen. The average cost of a kitchen renovation in the UK is around £8,000 to £15,000.
A personal loan can cover this, but interest rates can vary depending on your credit score. Typical rates range from 3% to 8%. Make sure to compare lenders for the best deals. Keep in mind, though, that missed payments can damage your credit score, so budget carefully.
Secured Loans
Secured loans, also known as home improvement loans, allow you to borrow money against the value of your home. These loans tend to offer lower interest rates because the lender has the security of your property.
They are ideal for larger projects like a loft conversion, which typically costs between £20,000 and £40,000. Since this type of loan is secured against your home, failure to repay could lead to repossession of your property, so it’s vital to ensure you can meet the repayments.
Doing Renovations As a Developer
If you are a property developer, you might look at bridging finance to purchase a property under a short deadline and then use your own funds to renovate the project and flip it for a higher price. The bridging loan is simply to replace the mortgage, but if you wanted capital to actually do the building work and cover the building costs, you might look at a refurbishment loan or development finance product.
Credit Cards
For smaller improvements, using a 0% interest credit card can be a viable option if you can pay off the balance before the interest-free period ends. For example, a £2,500 garden landscaping project could be financed with a credit card offering 12 months of 0% interest. However, if you don’t repay the full amount within the promotional period, interest rates can be high, ranging from 18% to 30%.
Remortgaging
Remortgaging your home involves refinancing your mortgage, often to release equity for large home improvements. This option is generally suitable for major projects such as adding an extension, which can cost between £30,000 and £50,000.
While remortgaging may offer lower interest rates compared to personal loans, it spreads the repayment over a longer period, meaning you could end up paying more in interest overall. Additionally, you may incur fees for switching your mortgage.
Government Grants for Energy Efficiency
If your home improvement plans include making your property more energy efficient, such as installing double glazing or adding insulation, you may be eligible for government grants. The UK offers schemes like the Energy Company Obligation (ECO) scheme, which helps low-income households improve energy efficiency. The cost of installing insulation in a typical semi-detached home is around £1,000 to £2,000. Grants can cover all or part of this cost, so it’s worth investigating what’s available in your area.
Planning Permission Considerations
Some home improvements, like painting the interior or installing new floors, don’t require planning permission. However, larger projects like extensions, loft conversions, or significant structural changes may need approval from your local planning authority. For instance, a two-storey extension almost always requires permission, and the cost of applying for planning permission is typically around £206 in England. Failing to get permission when it’s needed can lead to fines or even being forced to undo the work.
Watch Costs and Plan for Contingencies
Whatever financing method you choose, it’s essential to keep a close eye on costs and plan for contingencies. Home improvement projects often exceed their original budgets by about 10%, according to industry reports. For example, if you budget £10,000 for a kitchen upgrade, plan to have an extra £1,000 to £2,000 in reserve. Unexpected expenses such as structural issues or material delays can arise, and having a contingency fund will help you avoid going into additional debt.
Beware Rising Home Improvement Costs
A study by the Office for National Statistics (ONS) in 2022 revealed that the cost of building materials in the UK increased by nearly 25% due to inflation and supply chain issues. This means that the price you paid for materials a few years ago could be significantly higher now, making it even more important to carefully manage your budget.
Final Thoughts
Financing home improvements can be achieved through various means, from personal savings and loans to government grants. It’s essential to carefully consider your options, plan for contingencies, and ensure that you comply with any necessary planning permissions. Always keep track of costs and, when possible, use grants or energy-efficient schemes to reduce expenses.
