When to borrow for home improvements

AmyF

I don't know what to put into Google to find advice on this, so thanks in advance for any assistance.

We are due to remortgage on our house at the beginning of May next year. We are hoping to borrow money to replace our original 1970s kitchen (yaaay), carpet, remove a wall, etc. and generally get our house updated. I would assume that this will increase our property value a decent amount - hopefully by more than we plan to spend.

I originally thought we would borrow when we remortgage, but as I've been thinking about it, I'm wondering whether it would be better to borrow now, do the improvements, and with a view to having the property value increased before remortgaging (and thereby squeaking into a bracket for a lower interest rate due to a better LTV ratio).

I'm certain I'm not thinking about all sides of this issue - I'm getting pretty tired of the 1980s cooker (I think it might kill us), but I don't want to mess something up or to put us in a stressful or precarious financial situation.

Thanks!

sal_III

How stable is your income? doesn't sounds promising that you are enduring 1980s cooker and looking to borrow money for a new one. The loan you take to "preemptively" renovate will need repayment and this is going to affect your affordability for the mortgage.

IMHO it's a bit of a misconception that renovation increases the property by much more than the money spend on it. This might fool a FTB, but most people have a good idea how much it would cost and can factor it in their offers. It will definitely increase the chance to get an offer, but the lenders are not really interested in it, in this context.

You should also factor in the cost of the "preemptive" Loan as it could easily wipe out any potential savings from marginally better LTV

ACG

There are 2 ways to do it and you have described both of them.

Arrange finance upfront (in the form of a loan or credit cards), do the work and benefit from the increased value (assuming there has been an increase) when you come to remortgage. The downside to this however is that some lenders may have a concern when it comes to assessing your application, depending on the figures involved. Also some lenders will not lend to you for "debt consolidation" purposes above around 75% LTV (of the new value).

The alternative is to wait until it comes to a remortgage and take out the extra at that point. The downside there however is that you are potentially paying a higher rate on the full balance of the mortgage during the deal that you take out. You also have to wait for the work to be carried out.

Both are possible but as to which is best, you have to weigh up the potential difference in costs and also what your head/heart wants.

foxy-stoat

AmyF wrote: »

We are due to remortgage on our house at the beginning of May next year. We are hoping to borrow money to replace our original 1970s kitchen (yaaay), carpet, remove a wall, etc. and generally get our house updated. I would assume that this will increase our property value a decent amount - hopefully by more than we plan to spend.

This probably wont be the case, spending £10,000 on a new kitchen wont make your property worth £15K+ more, it would make it more desirable if you sell. Your property value would of been going up in line with index linking anyway.

Save what you can and do chunks of work when you have saved enough.

AmyF

Thanks for this - our income is quite stable. Our income has increased since we took out our mortgage, and we are making large repayments on a loan that would be paid off in full before we borrowed more. We borrowed scarcely more than half of what we could have to buy the house originally - we've just had other financial priorities until now.

Does it make any difference to finance through our current mortgage lender?

Will think over the rest of the advice, thanks!

AmyF

foxy-stoat wrote: »

This probably wont be the case, spending £10,000 on a new kitchen wont make your property worth £15K+ more

This is quite helpful - we fitted the kitchen in our last house, and so all the money we saved in labour I suppose went into the value. Was hoping to have more of the work done this time to save ourselves the stress. I need to factor this in when thinking about the impact on the value.

Exactly the input I need, thanks!

ACG

I do not agree with what people are saying about spending on improvements not increasing the value.

If you go and buy a kitchen with your heart rather than your head, you are probably not going to make your money back. But I am guessing our OP is not wanting a kitchen to necessarily build value but to improve their home and (going off the cooker comment) quality of life.