If you’re planning to refurbish and renovate your home, knowing your different financing options is important. Below, we answer the top questions we hear from homeowners to help you get started.
Looking to turn your property into your dream home? The process can be daunting, and navigating your property finance options can be challenging if you don’t know the available options.
Below, we look at what finance options are available to fund your home renovations, how these loans work, and what they will cost you.
What is the best way to fund a home renovation?
There are several different ways you can finance your home renovations, including:
Bridging Finance
The most common way to fund your home refurbishments is by using a bridging loan. A bridging loan is a short-term loan that covers the costs of your home improvements whilst you carry out the work. These loans typically last up to 12 months and are usually more expensive than standard homebuyer mortgage rates.
For more information on bridging finance, visit our bridging page here.
Capital Raising with a Remortgage
If you already have enough equity in your home, you can remortgage and release some cash from it to fund home improvements – lots of our clients do this! Choosing to finance your home renovations in this way may save you money on the cost of bridging finance, but remember, you will need to secure a new mortgage at a higher loan to value (LTV). With a higher LTV, you’ll likely have to secure a higher mortgage rate and see an increase in your monthly mortgage repayments. Learn more about remortgaging your home here.
Further Advance
A further advance is when you take out another loan with your existing mortgage lender. This loan is typically used to fund home improvements or debt consolidation.
It’s best to discuss whether this option is right for you with one of our expert brokers, as your further advance is an additional secured loan against your property and is typically at a higher rate than your primary mortgage.
The process is more straightforward than a standard remortgage, but most lenders will want to see a significant amount of equity in the property to consider offering you a further advance.
How do short-term property loans work?
As mentioned above, a bridging loan, or a short-term property loan, is typically used when you need funding quickly, as you can access the cash much faster than with a standard mortgage application.
Bridging can offer a flexible short-term solution, but it’s important to remember that these loans are more expensive than standard mortgages, and there are some fees to take into account, including:
- Arrangement fees
- Legal fees
- Valuation fees
- Administration fees
- Exit fees
How do I repay my bridging loan?
As bridging finance costs can be pretty high, you don’t want to pay interest on the loan any longer than you need to. Furthermore, your lender will want to know how you intend to exit the loan before accepting your application.
The most common exit for refurbishment is remortgaging. Depending on your project, you may be able to remortgage your home at a new higher value, using the additional value to repay the loan. Or you could release equity from the property (like the capital raise process we discussed above) and use that cash to repay the bridging loan. Our expert mortgage makers can help you determine your best exit strategy based on your circumstances.
How fast can I get a bridging loan?
One of the main benefits of bridging finance is that, generally, you will receive funding within weeks of your initial application. That’s why bridging is a popular choice for borrowers purchasing a property at auction or when a property is not currently mortgageable in its current state.
How much does a bridging loan cost?
Bridging is a short-term loan and generally costs more than a standard mortgage.
You will find that costs on a bridging loan vary due to a number of factors, such as:
- The amount you want to borrow
- Your deposit and the loan to value
- The duration of the loan (Up to 12 months)
- The condition of the property
As lenders know that you will be financing the costs of the refurbishments during the loan term, many defer or “roll up” the interest until you repay the loan at the end of the agreed term. This can give you peace of mind and relieve some financial pressure when improving your home.
What is the right home improvement finance for me?
You can turn your property into your dream home without breaking the bank with the right financing option. Whether you choose a bridging loan, capital raising with a remortgage, or a further advance, it's important to discuss your options with one of our brokers to find the best option for you.
What’s next?
To get started or to discuss your homebuyer mortgage plans, speak to one of our expert brokers by calling 0345 345 6788 or submit an enquiry here.
