Can you borrow money for a house renovation?
Maybe you plan to buy a fixer-upper, or maybe your current home needs a little TLC. If so, you may be thinking about how you can borrow money for a house renovation.
There are many different loans available to fund property renovations. Lenders offer home improvement loans, bridging loans, and various mortgage-related products you can use.
The best option for you will depend on a host of factors, such as:
- How much you need to borrow and how long for
- Whether you’re retired
- Whether you’re renovating a residential or rental property
- Your income and credit score
- Market conditions
In this article, we will look at the best loans for home improvements and weigh up the pros and cons of each one to help you decide which is most suitable for your needs.
Loan Type
Selina FlexiLoan
APR/APRC
4.10% APR
Loan Term
5 to 25 Years
Borrow
£25,000 to £1,000,000
Special Features: Super fast loan process from start to finish
Special Features: Super fast loan process from start to finish
Loan Type
Shawbrook Homeowner Loan
APR/APRC
4.2% APR
Loan Term
3 to 25 Years
Borrow
£25,000 to £500,000
Special Features: Complete flexibility – repay the loan in full at any time
Special Features: Complete flexibility – repay the loan in full at any time
4 ways to borrow money for a house renovation
Four of the best ways to fund a house renovation include:
- Remortgaging
- Second charge mortgages
- Bridging finance
- Unsecured loans
Here’s a quick summary of what you need to know about these four financing strategies:
| Loan type | Typical loan size | Interest rates | Is collateral required? | Income and credit requirements | Short or long term? |
| Remortgaging | Medium to large | Lower | Yes | Stricter | Medium to long |
| Second charge mortgages | Medium to Large | Lower | Yes | Stricter | Medium to long |
| Bridging finance | Large | Medium | Yes | Less strict | Short |
| Unsecured loans | Small to medium | Higher | No | Stricter | Short to medium |
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Remortgaging
Remortgaging your home involves taking out a new mortgage to replace your existing one.
When you remortgage, you can potentially borrow more than you owe by using your home’s equity (i.e. the part of your home that you already own) as security for a new loan, leaving you with extra for renovations. This strategy is good if you want to borrow a large sum and then repay the money over a number of years or decades.
For example, if you have £100,000 left to pay on your existing mortgage and you’d like to spend £50,000 on home improvements, you may be able to get a new mortgage for £150,000. You can then use the money from the new mortgage to repay all of the money from your old mortgage and put the leftover cash towards home improvements.
Bear in mind that remortgaging has some potential downsides. For one, it’s usually off-limits to borrowers with low or no income.
It can also be expensive in some cases. Early repayment charges or other fees may apply when you pay off your old mortgage.
Furthermore, interest rates on your original mortgage will will change when you remortgage, which could end up costing you more money. For example, if the Bank of England has increased interest rates or if your credit score has gone down since you took out your original mortgage, you’ll probably get a less favourable deal when you switch plans.
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Second charge mortgages
Second charge mortgages are another type of loan secured against your home. As with remortgaging, you can use them to borrow against the equity in your property.
Second charge mortgages are different from remortgaging in that, when you take out a second charge mortgage, you keep your existing mortgage (instead of replacing it). You then have to make separate payments for two different loans.
If you default, you’ll have to pay the first mortgage lender before the second. This means second charge mortgages are riskier for lenders compared with normal mortgages, so they tend to have higher interest rates.
Second charge mortgages don’t affect the terms of your existing mortgage, whereas refinancing your mortgage entirely might incur higher interest rates or early repayment fees. As such, the former option is useful if your current mortgage has favourable rates or other features that you don’t want to change.
Like remortgaging, second charge mortgages are usually good for funding large projects and repaying the money over a number of years or decades, but they’re often unavailable to borrowers with low incomes or no income.
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Bridging finance
Bridging finance or bridging loans are a type of short-term loan you can use to cover costs while you’re waiting on another source of financing. Often, people will take out a bridging loan if they need money to buy a new home but don’t want to wait until their old property sells to get the proceeds.
These loans can also be good for financing renovations – for example, if you want to buy a property that needs substantial work done.
Because bridging loans are usually secured by your property, they’re less risky for lenders. This means relatively high maximum limits for borrowing; lower interest rates compared with some other types of loans; and a good chance of approval for retired, self-employed, and poor credit borrowers.
Although bridging finance can be flexible, it’s not suitable for longer-term borrowing. Lenders offering bridging loans will also usually want to know exactly how and when you plan to repay them, and the maximum term will usually be around 12–24 months. After this time, you’ll have to pay back everything immediately as a lump sum.
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Unsecured loans
Unsecured loans are loans you can get without providing any collateral (such as a property, a vehicle, or other high-value assets).
The downside of these loans is that they tend to be smaller and more expensive for borrowers, as they’re a riskier bet for lenders. Unsecured loans are also harder to qualify for without a stable income and good credit.
There are many different unsecured loan products available to borrowers. Some are marketed as home improvement loans or home renovation loans – designed for funding residential property renovations; however, these are essentially a type of personal loan and work in much the same way.
In addition, there are many more personal loan products that aren’t specifically marketed at home improvers but that may still be suitable for financing smaller-scale renovations.
What type of loan should I get for my house renovation?
We’ve now looked at four avenues you can consider for funding home renovations.
Before you go ahead and choose one, it’s important to weigh up the pros and cons of each option.
| Loan type | Pros | Cons |
| Remortgaging |
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| Second charge mortgages |
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| Bridging finance |
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| Unsecured loans |
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What if I’m retired?
Many of the financing methods we’ve mentioned so far will be unsuitable for retired people. Products like mortgages and unsecured loans, particularly, are likely to require a stable income.
However, if you’re retired, there are other ways to finance renovations. In particular, you can consider equity release.
What is equity release?
Equity release is a type of loan for borrowers over 55 who own their homes. The various types of equity release products available, such as lifetime mortgages and reversion mortgages, allow you to use the equity from your property (i.e. to borrow against the value of your home) without selling it.
Lenders won’t usually have strict income-related requirements for this type of loan, so it’s a good solution for retired borrowers.
What if I want to buy to let?
If you’re planning to buy a property for rental purposes, you can still consider options like the ones we’ve already mentioned to fund renovations and increase the rental value of your property.
Other solutions you can explore include:
- Commercial mortgage products for landlords: Some mortgages designed for landlords will be suitable for renovating rental properties. Examples include refurbishment buy-to-let mortgages and portfolio mortgages (which you can use to release equity from one property in your portfolio to fund renovations on another).
- Development and refurbishment finance: This encompasses short-term loans specifically designed to fund the renovation or development of properties. Loans are usually secured against the property being improved.
- EPC (Energy Performance Certificate) loans: These loans are for property owners looking to boost their Energy Performance Certificate or EPC ratings, and are designed to finance energy-efficient upgrades. However, they’re more restrictive in terms of how you can use them.
Other ways to fund your house renovation
Finally, if you don’t like any of the ideas we’ve explored so far, here are a few more strategies for funding renovations:
- HELOCs (home equity lines of credit): These are actually a type of second charge mortgage, but they’re special in that they give you revolving credit, which you can borrow, repay, and borrow again up to a set limit, as with a credit card (in contrast with instalment credit, where you borrow a specific sum and repay it in fixed monthly instalments over a set term). HELOCs suit ongoing projects with unknown costs.
- Renovation mortgages: These are designed for properties that need major repairs or upgrades. Unlike ordinary mortgages, renovation mortgages include funds for home improvement or renovation projects (in addition to the purchase price of a property), so they have some special features that differ from ordinary mortgages’.
- Overdrafts: Some banks offer overdraft facilities you can use for smaller home improvement projects. These offer a flexible way to borrow money, but interest rates can be high.
- Credit cards: These can work for smaller projects (as you won’t usually be able to borrow huge amounts). Look for credit cards with 0% interest intro offers or other low-interest deals.
- Borrowing from friends or family: Instead of paying interest on a bank loan or mortgage, you could offer to pay interest to a friend or family member who has enough savings to fund your project.
- Saving up: This rather traditional approach can allow you to avoid taking on debt and save you money in the long run.