Ultimate guide to home improvement loans

Want to improve your home, but don’t have the cash? Find out if a home improvement loan is the right solution for you

What would you do if you had the extra cash?

Making home improvements can provide you with a win-win situation. Firstly, by improving your home you’ll make it a nicer place to live. Secondly, depending on the home improvements you make, you could increase the value of your home. So, if you ever decide to move, you could re-coup the amount you spent and more besides.

For example, if you use the loan to add a bedroom to your property, it could work out a lot better value than trading up to a bigger place.

If you ever decide to move, you could re-coup the amount you spent and more besides.

Please be realistic though. For example, if you pay £40,000 for a kitchen to be installed in a two-bed semi, it won’t automatically increase the value of your home by £40,000. After all, there will probably be a maximum value put on this size home, no matter how nice it becomes.

A secured loan used for home improvements could turn out to be a wise investment.

What’s a home improvement loan?

It’s exactly as it sounds: a home improvement loan is a loan that you can take out to improve your home. If you’re looking to make small improvements such as a home makeover, a personal loan may cover the costs. But for larger, more expensive improvements such as an extension, a secured homeowner loan may be more suitable.

Why take out a home improvement loan?

There are plenty of reasons why you might want to take out a home improvement loan, but here are just a few suggestions to get you started:

  1. Your home may require urgent repairs or renovations, from a new roof to replacing the central heating or double glazing
  2. More living space is needed with an extension, conservatory or loft conversion
  3. The existing kitchen or bathroom look tired or worn and you would like to replace them with something more luxurious
  4. Increase the value of your home before you sell it

What type of person takes out a home improvement loan?

According to Moneysupermarket data1home improvement loans are particularly popular with first-time buyers. This might be because they’ve worked hard to make it onto the property ladder and are quite likely to have purchased a fixer-upper that needs work to turn the property into a home. Or, perhaps they feel they’d like to project themselves onto the home to ‘make it theirs’. It’s unlikely for first-time buyers to get a secured homeowner loan straight away as they need to build up equity in their property first, but, they may well be eligible for a personal loan.

As they are most likely to be first-time buyers, the type of person that takes out a home improvement loan is likely to be a house-proud 25-44 year old. Despite this relatively youthful age range, this type of loan is the loan of choice for the highest average earners who are looking for a loan.

So, if you’re a 25-44 year old who’s a first-time buyer, don’t be surprised if you suddenly feel the urge to take out a home improvement loan to make the most of your existing property.

How much can I borrow with a home improvement loan?

If you’re planning home improvements, get quotes from at least three companies to see how much the work is likely to cost. As you’d expect, younger home improvement borrowers tend to take out a loan for around £4,000, but those in the 45-64 year old range often borrow much more with an average loan of around £9,000

At Loan.co.uk depending on your circumstances, you could take out a personal loan from £1,000 to as much as £35,000.

However, if you want to make major, expensive improvements, or if your credit rating isn’t the greatest, your best option may be to take out a secured, homeowner loan. Again, depending on your circumstances, you could take out a secured loan for £5,000 to £5 million. That’s an awful lot of laminate flooring.

The amount you should apply for will depend on various factors. For example:

  • The amount of work needed
  • The materials required
  • The amount of equity you have in your home
  • Your credit rating and how much you could comfortably to repay each month

We explore how much some popular home improvements  are likely to cost in an earlier article.

Because a secured loan uses your property as collateral, one factor that will influence the amount that you can borrow will the amount of equity you have in your home. That’s the amount of the value of your home that you own, free and clear of what you owe on your mortgage.

A loan broker will be able to help you work out the best options for you and your circumstances. At Loan.co.uk we can also make this process very easy, check your credit score, arrange the property valuation and secure your new loan – providing you are eligible.

Think carefully before securing other debts against your home as your home may be repossessed if you do not keep up with repayment on a mortgage or any other debt secured on it.

How do you qualify for a home improvement loan?

This will depend on the type of loan you take out to fund your home improvements. If you only plan to carry out relatively minor work, a personal loan may suffice. To qualify for this type of loan, you will need to be able to confirm your income and your outgoings so that the lenders are confident that you will be able to comfortably make the repayments.

With a personal loan, you could borrow between £100 and £35,000 and the payments are fixed, so you will know in advance how much you will be repaying each month, making budgeting easy.

If you are planning home improvements that will be expensive, a homeowner loan may be the best option. Depending on your circumstances and the amount of equity you have in your property, you could borrow millions if needed.

To be able to apply for this type of loan you will need to go carry out a few calculations and gather together some information, so that the loan broker and lender may help you. Please think carefully before securing other debts against your home as your home may be repossessed if you do not keep up with repayment on a mortgage or any other debt secured on it.

  1. Work out how much equity you have in your home

Equity is what your home is worth, minus the amount that is outstanding on your mortgage and/or any loans secured against your property. Most lenders will want you to have at least 20% equity in your home before they will approve a home improvement loan.

  1. Check your credit history and credit score

Even if you do not have the greatest credit history or credit score, you may still qualify for a secured homeowner loan. If your score is excellent, it may be reflected in the interest rate you are offered.

  1. Get your proof of income together

Lenders have a duty of care to ensure that you can afford to repay your loan, so they will usually carry out an affordability test. This will often involve looking at your income (payslips may be required) and outgoings (recent bank statements may be asked for).

  1. Ask for estimates from contractors

The lender may want to have a good idea of how much the work you are proposing would cost to carry out. It may be wise to include a contingency amount for larger jobs, such as an extension or loft conversion in case of unexpected difficulties that mean ending up with a larger than expected bill.

However, note that even if you have plenty of equity in your home and you also pass the affordability test with ease, borrowing a larger amount may increase the amount you have to repay each month.

Why do so many people take out a secured, home improvement loan?

Although you should of course think carefully before taking on any type of loan, there are many advantages with a home improvement loan:

  • Although you will be paying interest on the loan, this borrowing could fund work that increases the value of your property
  • Because lenders look on this type of loan as low risk, loan.co.uk is likely to find you a particularly competitive rate on a home improvement loan
  • You could save money by fixing a serious issue now. For example, it is often cheaper to repair a leaking roof in the early stages before it gets worse and causes a lot of expensive damage to your home

What should I consider before taking out a secured home improvement loan?

With any loan that’s secured on your home, you have to be sure that you’ll be able to make all the repayments on time and in full for the length of the loan. If you don’t feel you’ll be able to keep up with extra loan repayments, you shouldn’t consider borrowing money.

What are the alternatives to a homeowner loan?

Well, you could just put up with the way your home is at the moment or sell it and move to a house that already has all the features that you want. If this is the case, you’ll probably need a mortgage. Alternatives include unsecured, personal loans and credit cards but bear in mind the interest rate can be a lot higher than for second charge loan.

But if you want to make major, expensive improvements, or if your credit rating isn’t the greatest, your best option may be to take out a secured, homeowner loan.

Where should I look for a home improvement loan?

The great news is that you’re already in the right place, because a loan broker such as Loan.co.uk will be able to help you to discover the best home improvement loan options for you and your circumstances from a wide range of lenders.



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