Home Improvement UK Mortgages

What are home improvement mortgages?

Easter used to be the weekend of bunnies, eggs, chocolate and religion. Now, the four-day weekend is more commonly associated with DIY. Easter 2001 saw £2.5 billion spent on home improvements. But these improvements don't come cheap, and many people have to borrow money in order to fund the cost of improving their homes.

Loans for small amounts of money (i.e. around £10,000 - 20,000 for example) can cost you extortionate rates until you can clear the balance. So if you don't have the necessary savings already it could cost a great deal to fund the improvements to your home. However, should your home have increased in value over the years, then there could be another, cheaper option available to you. The cheapest method of borrowing money to fund home improvements is to remortgage your home and release the equity in the property.

Equity is the difference between the amount that you still owe on your mortgage and the value of your home. Should your home be worth £200,000 and your mortgage balance is £130,000, then you have equity of £70,000. As the value of your house rises, your equity rises. House prices increased by more than 15% in 2001, so many homeowners have thousands of pounds worth of equity in their home. You can get your hands on this in two ways. Sell you home, or remortgage.

Remortgaging enables you to borrow on the equity in your home and spend it as and when you want to. With many lenders offering fee-free remortgages, you can move your home loan in order to raise money, rather than save it. So whilst many people may use Remortgaging to consolidate their debt, a growing number of borrowers are using the funds they raise to pay for home improvements.

Lenders like to do this, because making the right improvement to the right kind of property can add a great deal of value to your home. For instance, if you convert a loft into a bedroom and add it to a three bedroom house around London you could add up to £50,000 to the value of your home for the cost of about £25,000. This puts the value of the property up, and the lender likes that, because until the mortgage is paid off, the lender owns the house.

But not all home improvements will guarantee a return on the investment, you can over-improve your home. For instance, if you live in an area of small flats or houses and build a swimming pool, you may not get back what you paid to install it.

Remember that the amount of equity you have in your home has lessened, so if property prices fall then you could end up in negative equity. So be careful.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2009

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