Remortgaging for Home Improvements

How does remortgaging for home improvements work?

For home improvements, lenders actually use the current value of the property rather than the improved value. Your house might be worth £200,000, but if you put an extension on it will be worth £300,000. The lender at the time of applying will just use the valuation of £200,000.

This is important, because a lot of clients contact me saying that the house is going to be worth £300,000, not realising that the lender only uses what it’s worth today. They do that in case you don’t do the work for whatever reason – perhaps you can’t get the planning permission you need.

The process is relatively simple. You would get your plans drawn up for your renovations or get the costs for your new kitchen or bathroom. You would work out the savings you have to put towards that and how much you will need to borrow.

I would look at all the different lenders’ criteria and interest rates, and work out whether your existing lender is worth approaching or whether a new lender for the whole mortgage is best.

We would assess who’s going to be the cheapest, how long you want the mortgage over, and then apply for the most suitable deal. In most cases, the lender would do a valuation.

At the moment, many prefer automated or desktop valuations. If they can prove that the house is worth £200,000, as per my example, they won’t need to send anybody, which saves a lot of time and effort. In some cases, that’s not possible and the lender needs access to the property to work out its value.

What do you need to have to remortgage for home improvements? What criteria do I need to meet?

Obviously you need an indication of cost. I’ve just done one recently for quite a big extension, borrowing £150,000. Because some of it is structural, the lender wants to confirm what works need doing and will send the details through to the valuer.

In some cases you will need plans drawn up. That usually won’t be a problem because you would need them to apply for planning permission. You would apply for permissions before requesting the mortgage, because you need to know you’ll get planning before you borrow the money.

The rest of it is down to income and the equity in the house. In most cases you couldn’t borrow more than 90% of the property value. However I do currently know of one lender that may consider 95%

Can I remortgage my Buy to let for home improvement?

Yes. It’s largely the same, but there is a slight difference in how they assess the borrowing. It’s based on the amount of rent coming in, rather than how much you’re earning.

If it’s a residential property and you’re employed, they want your pay slips and your bonus statements. If you’re self-employed, they’ll want your tax year overviews, tax calculations or your accounts.

Meanwhile, if you’re remortgaging a Buy to Let they most likely will want a copy of your assured shorthold tenancy agreement, to clarify how much rent’s coming in a month. That’s what they base the lending on.

How much can you remortgage for home improvements?

There isn’t a specific value. As I say, I’ve got one going through for £150,000 at the moment, and another one for £8,000 to buy a new kitchen. They’re completely different, but the borrowing is always based on the value of the property.

The majority of lenders wouldn’t lend more than 90% Loan to Value. On a house worth £100,000, they would only go up to maximum lend of £90,000. A couple of lenders might go up to £95,000 or 95%, but you couldn’t borrow £120,000 if the house is only worth £100,000.