Home improvement loans

Compare home improvement loans [1]

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What is a home improvement loan?

Put simply, it’s a loan that you take out to spend on making improvements to your home. This could include anything from decorating or adding an extension to installing a new fitted kitchen or building a conservatory.

It helps you spread out the cost of a project with monthly payments over a set period of time.

You pay back the amount of money you borrowed by the end of the term, plus interest.

The total amount you pay back will depend on the rate of interest you’re charged as well as the length of the loan.

Home loft extension mid-contruction

What home improvement loans are available?

You may want to think about:

Personal loans

An unsecured loan, also known as a personal loan, is one that isn’t secured against your property.

Every lender will have a different limit on the maximum amount you can borrow with a personal loan. But usually they’re for between £1,000 and £25,000. Some banks might offer more to existing customers, often up to £50,000.

Most personal loans have a fixed rate of interest, which means you’ll pay the same amount each month throughout the term of the loan.

The rate of interest you pay will depend on your circumstances. It won’t necessarily be the advertised interest rate.

The maximum term for a personal loan is likely to be 10 years, though more commonly, they tend to be one, three or five years.

The longer the loan term, the cheaper the monthly repayments will be. But you’ll end up paying more interest overall.

Secured loans

This type of loan uses your property as a form of security.

If you fail to repay the loan, the lender can take the property and sell it to cover the outstanding balance, so you should think very carefully about whether you can afford your monthly payments before you commit.

Secured loans typically allow you to borrow larger amounts than personal loans - from around £10,000 and sometimes up to £500,000, depending on the value of the asset.

They can offer more competitive interest rates than unsecured loans and longer periods to repay – generally between five and 30 years. Paying back over a longer period means monthly payments can be lower, but you’ll pay more in interest overall.

How to compare home improvement loans

Once you have an idea of the sort of loan you’d like to opt for, how much you want to borrow and over what length of time, you can perform a smart search with us.

This is a type of soft search that won’t adversely affect your credit file.

It will return a credit score which is used to show you the loans you have the greatest chance of being accepted for, filtering out ones you’re most likely to be rejected for.

You can then choose to apply for the loan that seems best suited to your needs.

What should I consider when choosing a home improvement loan?

By law, the headline interest rate advertised on any loan only needs to be given to 51% of people who successfully apply for it, which is usually those with the best credit rating. This means that 49% of applicants are likely to be offered a more expensive rate.

If your credit score isn’t great or you’re on a lower income, you may find that the interest rate offered to you is higher.

Am I eligible for a loan?

Lenders will impose certain eligibility criteria before offering a loan.

For example, you may need to:

  • Have a good credit score
  • Have been a UK resident for at least three years
  • Have a current account
  • Earn a regular income over a certain amount
  • Be over 18 and no older than 70 when the loan term ends

What fees will I need to pay?

Check for things like:

  • Arrangement fees – Administration fees the lender charges for setting up the loan
  • Late repayment charges - If you miss a repayment you may be charged interest on the amount overdue, as well as an administration fee
  • Early repayment fees - If you want to pay off your loan early, you could be hit with penalty charges, typically the equivalent of a couple of months’ interest

What alternatives are there to home improvement loans?

Before taking out a loan, consider:

Credit card

A credit card can help spread the cost of smaller home improvements.

Some credit cards offer 0% interest on purchases for an introductory period. These can be a great option for borrowing as long as you pay back the full amount by the time the 0% deal ends.

If you don’t, you’ll usually be hit with high interest rates. You’ll also need to have a good credit score to qualify for a 0% card.

Overdraft

With an arranged overdraft, you can spend more than you have in your bank account, up to a certain amount. You’ll be charged interest on the amount, which may be higher than on a credit card or a personal loan. Alternatively, you may be able to access a 0% overdraft.

Remortgaging

You could remortgage with a new lender and borrow more money to pay for home improvements.

For example, if you currently have a mortgage of £150,000 and want to pay for a loft extension which will cost £25,000, you could apply to take out a mortgage for £175,000 and use the extra £25,000 borrowed to pay for the work.

It will mean that your monthly payments increase, so you’ll need to be sure you can afford it. Failing to make repayments could mean you lose your home.

Interest rates on mortgages are normally lower than on personal loans, credit cards or overdrafts. But, because you’re paying off the loan over a longer period, you’ll end up paying more in interest overall.

Borrowing more on your current mortgage - getting a further advance

Your current mortgage provider may lend you more money, often from £10,000 upwards. This will depend on a few things, such as how much of your mortgage you’ve paid off.

Your lender may charge a different rate of interest on the extra amount you borrow, also known as a second-charge mortgage.  When consider a second-charge mortgage, remember that the amount a lender is willing to lend a customer will depend on the Loan To Value ratio (LTV) and won’t necessarily be up to 100% - most second charge lenders have different LTV criteria and this will depend on different factors, which could include credit score, affordability, first mortgage, debts and household outgoings and the borrower’s personal circumstances such as employment status. The loan amount will also be impacted by the borrower’s age and the loan term.

Again, if you fail to keep up with repayments your home could be at risk.

Frequently asked questions

It depends on how much you want to borrow and how long you need to pay it back.

Research all borrowing options to find the one best suited to your circumstances.

Only ever borrow the amount you need, never more. Get a range of quotes from traders to find the average price for the work you need done and draw up a budget factoring in all the costs.

Renovating can be worth the investment for all sorts of reasons. It can make your home more comfortable, or even make it safer or more energy efficient.

If you’re renovating purely to try to add value to your home, be careful. You might spend more on an expensive project than you’ll get back when you sell up.

And remember, if you’re borrowing money for home improvements that aren’t strictly necessary or needed in the immediate future, then you’re always better off saving up for the work to be done rather than taking out a loan.

You can spruce up a room with a lick of paint for less than £100 or spend tens of thousands of pounds on an extension. The cost of any home improvement will of course depend on the size of the job.

Shop around and don’t accept the first quote you’re given. Always ask for reviews and examples of a trader’s past work before going ahead.

Yes, if you don’t want to remortgage or switch your mortgage provider, you can apply to your current lender for a further advance. This is where you borrow more money on your mortgage.

The amount you’ll be allowed to borrow will depend on the lender’s maximum loan-to-value (LTV) for the current value of your property.

Most home improvement loans are personal unsecured loans.

A home equity loan is a secured loan that allows you to borrow a lump sum against the equity or value you have in your property.

For example, if your home is worth £200,000 and you have £80,000 left to pay on your mortgage, you have £120,000 equity, which you can borrow against.

With this type of loan, your home is at risk if you don’t keep up with repayments.

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER LOAN SECURED ON IT

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