Is borrowing for house renovation a good idea?

TornSoldier

Hi All,
I was wondering if it will be cheaper doing some renovation on loan now vs saving up and do in future (original plan was to do 1.5 years from now). Expected spend is going to be around £5000.
Any pointers on whether this is good or bad idea will be helpful.
Cheers
T

[Deleted User]

It all depends on your circumstances.

From a pure financial viewpoint, you should save up unless you can borrow for less than your savings rate. 

But if your roof is currently sitting on your living room floor then borrow the money and get it done now.

eddddy

There's also the question of what you think will happen to renovation costs (building materials and labour costs) over the next 1.5 years.  If you expect costs to increase at a rate higher than loan interest, do the work now. But with talk of a deep recession, maybe costs will decrease - so delaying would make sense.

I guess there's also the risk of changes to your financial situation - e.g. you lose your job/income and/or have large unexpected costs in the next 1.5 years.

If you've taken out a loan, you'll be committed to making repayments - even if your financial situation turns bad. But if you haven't taken out a loan, you can just delay the renovations until your finances improve.

43722

Get it done.

MinuteNoodles

For me it is because my ROI rate is higher than I can borrow money at so my money works harder for me sat in investments rather than paying for something. Had the interest rate on the loan been higher than my ROI then the money I have saved is better spent on what the loan would have covered. 

In short it boils down to:
Interest rate on savings more than loan, pay with loan.
Interest rate on savings less than loan, pay with savings.

Also as above doing it now is likely to be cheaper than doing it in a couple of years time purely because of inflation. There's also the reasons why you're renovating to be factored in too. If part of the job involves repairing something that's continuing to cause more damage, such as a leaking roof or rising damp, then sorting it now will save money over sorting it later when you've not only what damage there is now to fix but any further damage caused too. 

Grumpy_chap

I fall into the "get it done" category.  Obviously financially it is better to save and then get the house improvements, but it is  a relatively low value of work and no way of knowing what will happen with costs in the next 18 months.  The offset benefit for getting the work done is the value of having the improved quality of live sooner.

TornSoldier

Thank you all. I have started lining up the quotes

Dr_Crypto

I'd just get on with it. For most people credit is cheap and as this damn virus has shown life takes all sorts of twists. Having a nice place to live is important. 

CRISPIANNE3

We have just had a new kitchen and new bathroom with building work being done in November. Materials being financed on zero percent credit card and the rest in cash.  However we always make sure we have enough savings to cover any debt.