Don’t move house. Improve – and pay next to nothing
Householders all over the country are improving or enlarging their homes on a wave of easy credit – and you can get that new kitchen or extension effectively for nothing if you manage your borrowings cleverly.
Strong house price growth and the high cost of moving have ensured that Brexit fears and the general election failed to stem the tide.
Stuart Barr, a director of Stuart Barr, an Oxfordshire building firm, said: “We are extremely busy, and it surprises me how many calls we get every single day from people wanting work done. Our kitchen department is three times busier than it was last year.”
A new trend spotted by Matthew Wills, director of Cornwall-based 3HW Architecture & Design, is the growth in property conversions to accommodate wider family: “Lofts and extensions are bread and butter to local builders and architects, but we’re also seeing an increased trend in demand for conversions to accommodate extended family.”
“Older generations are selling up and joining their children,” he added.
“This allows grandparents to do the school run while parents work, for example. It also has an eye to a future when grandparents may need some care from their children and grandchildren.”
David Hollingworth, a mortgage broker at London & Country, said: “Everyone can do the ‘skip index’. How many skips are there in your road? This is hardly surprising, as it is possible to restructure your borrowing so a major renovation can cost very little, if anything at all.”
We show you how to borrow to extend or improve at minimal cost.
An easy way to raise finance for home improvements is via a further advance from your existing mortgage company. Lenders have their own rules on how much they will lend, for how long, and at what cost.
Typically, the new advance will be via a separate account and you will be able to choose from the most competitive deals on offer. The new loan will not change the terms of your primary mortgage, but lenders will cap total borrowing.
Barclays, for example, will lend up to a combined 80pc of the property’s value, while Halifax and Yorkshire Building Society will lend up to 85pc. Picking the term of the new loan to avoid future complications is important.
Fee-free deals will be best for small advances. Barclays will lend fee-free up to 80pc of the property value at 1.88pc fixed for two years or at 2.34pc for five years.
With Yorkshire Building Society, you can borrow fee-free for two years at 2.14pc or for five years at 2.63pc, both up to a maximum of 85pc of the property value.
It may be possible to do up the kitchen or build an extension effectively for nothing or next to nothing if you can remortgage all your borrowings on to a better deal. For example, a borrower who pays 4.5pc interest on a £200,000 mortgage currently has monthly repayments of £1,265.
However, if they borrowed a further £50,000 but switched all borrowings to Tesco Bank’s five-year fixed rate of 1.68pc, then the monthly repayment would be only £1,227. This is £38 a month less than they are paying now. The Tesco offer is only for mortgages of up to 60pc of the property value and comes with a £995 fee.
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For older borrowers, raising finance without the worry of paying back interest may be crucial. This can be done via a lifetime mortgage or “equity release”, which allows interest to roll up until the debt is paid off when the property is sold.
These plans used to be expensive but costs have fallen significantly. For example, you can now fix interest for the rest of your life at around 3.79pc with Hodge Lifetime, or at 3.82pc with Legal & General. Exact terms may differ according to age and size of loan.
Credit cards, personal loans and secured loans
It is possible to shuffle a clutch of deals on zero-interest credit cards to fund home improvements in the short term. However, unless you are confident that you can clear the debts before the interest rates revert to normal levels when the deals end, this can be dangerous.