In a survey of nearly 2000 homeowners, 48% took on some form of renovation project in 2023, and for those aged 55 or over, the question of how to fund these works could be a key one.
Costing home renovations
Whether you want to update your kitchen, build a conservatory or turn your loft into an extra bedroom, the cost of home renovations promises to be steep. Median spend on renovations increased 13% from 2020 to average costs of £17,000 in 2023. This is unsurprising with a consistent building materials shortage, with annual supplies of bricks and blocks down 4.3% and 9.8% in April 2024.
Before embarking on any renovations, it is a good idea to get quotes from at least three different builders, as costs vary widely depending on the type and scale of the work. And before you do even that, it’s wise to decide how best to fund your home improvements.
Equally, it’s important to factor in what the work may add to the value of your home. For example a loft conversion, one of the most popular ways of maximising space, can cost as much as £50,000 but could also elevate your home’s value by 15 to 20 per cent.
Ways to fund home renovations
These are five popular ways of funding home renovations:
- Additional borrowing on a mortgage
- Releasing equity
- Home improvement loans
- Credit cards
- Save
Consider your funding with the Telegraph Media Group Equity Release Service provided by Responsible Equity Release
To help you understand what your equity release options could be, the Telegraph Media Group Equity Release Service is provided by specialists Responsible Equity Release. By using the calculator, you can discover how much tax-free cash you may be eligible to release. You can also receive a free guide to equity release by post and email, as well as hear from their friendly Information Team.
Responsible will also be able to answer any questions that you may have and book you a no-obligation appointment with a fully qualified adviser. Your adviser will help you to determine if equity release is the right choice for you and to explore the various products and features available to ensure you get the most out of your equity release plan to achieve your dream home.
1. Borrowing on a mortgage for home improvements
If you are making significant changes that require a larger sum, borrowing extra on your mortgage for renovations is one way to raise capital.
However, remortgaging isn’t always straightforward for older borrowers, because lenders want to see evidence that you will still have a stable income once you retire. They may also agree only to lend over a shorter term, which can mean higher repayments.
As with all mortgage borrowing, there is a risk of repossession if you are unable to keep up your repayments. You may also want to consider the extra cost of paying interest over a longer period of time. For some, taking this risk in retirement, at a time when your income is likely to fall, won’t be the right choice.
2. Equity release for home improvements
As an alternative to borrowing extra on a mortgage for renovations, homeowners over the age of 55 could use equity release for home improvements. With a lifetime mortgage, the UK’s most popular equity release product, you could release a portion of your home’s value as a tax-free cash lump sum.
Rather than make monthly repayments, with a lifetime mortgage the loan and interest – which rolls up over time – are usually repaid to the equity release provider only when the last homeowner dies or enters long-term care. Typically, this will be achieved with the sale of the home.
If interest roll-up concerns you, then you can choose to make voluntary repayments, often up to 10% of the mortgage value per year without penalty. Should you wish to stop these payments, you can do so at any time.
It is important to note that by releasing equity from your home today you will reduce the value of your estate. If you qualify for means-tested benefits, then releasing equity could also affect your current entitlement.
3. Home improvement loans
Loans are another way to finance home improvements if you don’t have enough in savings.
A home improvement loan may not be the best option for older borrowers because this will cause them to incur a debt that requires servicing in retirement. Think carefully about how long you will need to repay the loan if you are considering this method.
In comparison, with equity release, while you are taking a loan, you don’t need to make any payments. Also, all plans from lenders approved by the industry body, the Equity Release Council, have a no-negative equity guarantee, which means that you will never owe more than the value of your property.
4. Using credit cards to fund home improvements
If you are only making minor changes to your property, you may decide to use a credit card to cover costs.
For example, you may be planning to give your property a fresh new feel by redecorating, which can cost anything from hundreds to thousands, depending on the extent of the work.
When choosing a credit card, consider opting for one with a lengthy 0 per cent APR introductory period, so you can pay off what you owe before you are charged interest. Bear in mind that we are not offering advice on the use of credit cards, and that should you apply for one approval is likely to be subject to your financial circumstances and credit history.
Should you miss any payments, your credit history and future ability to borrow may be affected.
5. Save
Saving could be an option for any home improvements that aren’t immediately needed.
You could work out where you can free up cash from everyday expenses and put this towards the work you want to have done. By utilising savings, you won’t need to factor monthly payments or credit checks into your planning, so this is the most sensible option if you would rather pay for home improvements up front.
Set reasonable expectations of how much you could save within your timeframe. This might require you to compromise on your budget, so also factor in your current lifestyle costs.
How do I decide which method is right for me?
Take time to consider your desired home improvements alongside your long-term goals. Consider any current borrowing you may have, such as an existing mortgage, as this may affect whether you can access all the possible options.
Is equity release the best way to fund home improvements?
If you decide that you would like the peace of mind that enables you to enjoy your new home improvements without having to make immediate repayments for funding them, then equity release could be a worthwhile consideration for you.
Additionally, since there is an option to make voluntary repayments on the amount borrowed when releasing equity, this option can offer much more flexibility than other avenues.
And while it’s worth considering that this method of funding home improvements will reduce the value of your estate, using the equity released from your home to make improvements is likely to increase its value and mitigate some of this impact.
Do also bear in mind that you must wish to release at least £10,000 with equity release, and the long-term cost of borrowing should always be considered when deciding how much to release. This could make equity release a viable option for larger-scale home improvements, rather than small changes.
Read more:
Equity release is only available to homeowners that own a property within the United Kingdom.
By taking money out of your property now, a lifetime mortgage will reduce the value of your estate. A lifetime mortgage may also affect your entitlement to means-tested benefits, but an adviser can walk you through the impact of this before you decide to proceed.
The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.
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