Whether you’re seeking to increase the value of your property, or simply hoping to make your home a more comfortable and beautiful place to be, home improvements can end up being rather costly.
When it comes to performing a spot of light DIY, gearing up for a huge extension or lusting after an ambitious loft conversion, many of us turn to loans to fund the work we need to carry out on our living spaces.
Here’s what you need to know if you’re looking for your own home improvement loan.
What is a home improvement loan?
Home improvement loans are basically standard loans that can be taken out in order to meet the cost of repairs, maintenance or enhancements to a property that you own.
Typically, a loan is taken out to pay the full cost of a home improvement job, whether it’s a full attic conversion or laying a new carpet. Following its completion, the borrower will then pay back the loan over a pre-agreed time, usually in set, monthly instalments.
Alternatively, a loan can be taken out to cover only a portion of the overall costs, with the remaining capital coming from elsewhere, such as savings.
Who is likely to apply for a home improvement loan?
Home improvement loans appeal to a number of people who want to carry out work on their properties but don’t have the cash to pay for the improvements immediately. A large number of borrowers are within the 25-44 age range and are perhaps carrying out work to improve the value of their properties before they eventually sell it on in the future.
Others who may be interested in home improvement loans could include those who have reached retirement age and want to dedicate resources to making their home more comfortable and functional, while they spend more time in it.
I need a home improvement loan, will I qualify?
Lenders will take various factors into consideration when setting the terms of a home improvement loan, as well as when deciding whether or not you are eligible for the product.
- Whether the loan will be secured or unsecured
- How good your credit rating is
- How much money you want to borrow
- How quickly you can pay the money back
What different types of home improvement loans are available?
Unsecured home improvement loans
An unsecured home improvement loan is taken out for the purpose of funding work on your house but isn’t secured against an asset, such as your property. This means that if you’re unable to meet your scheduled repayments, for any reason, the lender does not have an automatic claim against your home.
It’s normal for lenders to require a good credit rating and borrowing history from those who take out an unsecured loan, as the borrower isn’t providing any collateral, should they default on their payments.
Secured home improvement loans
A secured home improvement loan is also taken out to make improvements on where you live, with the money being borrowed against the equity or value of your home.
If you’re unable to pay back the loan as promised, the lender can take back the money you owe from the equity that you’ve built up in your house. For this reason, it’s important to consider applying for this type of loan carefully, and making sure you can definitely meet your monthly repayments, as your home may be at risk if you fail to do so.
Interest rates for secured loans are usually lower than for unsecured loans, as you have minimised the risk for your lender by offering your home as security. Lenders are also generally prepared to loan higher amounts with this type of borrowing.
Are there other ways to borrow for home improvements?
If you want to borrow a larger amount and have a mortgage on your home it may be worth considering refinancing (re-mortgaging) your mortgage. There would be a few things to consider, for example, when does your current deal end, would you incur charges etc. However, for larger amounts and if you feel the improvement could raise the value of your property, it could be worth considering this route.
If the amount you need to borrow is small and for a short term, you might also wish to consider using a credit card to finance the necessary work. There are many credit card providers offering low or no interest for periods of time on purchases or balance transfers – but keep an eye on the deal end dates as after that, you will be paying much more interest than you would on a standard loan.
In both cases, you should ensure that monthly repayments will be manageable across the term of the loan, even if your circumstances change.
How much could I expect to borrow with a home improvement loan?
Most lenders offer small sums for the purpose of home improvement, with typical amounts ranging from £1000 to £25,000. Depending on your credit rating and credit history, you may be able to borrow sums of up to £100,000 to spend on improving your home, though figures at the lower end of the scale are more typical.
Mortgage lenders may look more favourably on borrowing larger amounts if the purpose of the loan is to fund work that could be expected to increase the value of your property, and is therefore a sensible investment. Such work includes the addition of double glazing or solar heating, or the creation of further rooms and / or adding a parking space or garage.
Taking out a home improvement loan can be simple, quick and straightforward for those with a good credit history. Those with a more difficult financial background may find securing a loan for this purpose a little more challenging, as home improvement can be regarded as a luxury rather than an essential.