What are home improvement loans?

A home improvement loan is a loan designed to fund refurbishment or redecoration work to your property. Most home improvement loans are secured against your property and they allow you to borrow the cash needed to pay for building work, redecoration, a new bathroom or kitchen or a range of other home improvements.

Home improvement loans are often separate from your main mortgage and can be with a different loan provider.

Am I eligible for a home improvement loan?

If you are a homeowner and over the minimum age limit for a secured loan (typically 18 or 21) then you are eligible to apply for a home improvement loan.

If you do not own your own property you may still be able to apply for an unsecured home improvement loan depending on your personal circumstances.

Why would I want a home improvement loan?

If you want to undertake expensive renovations in your home – perhaps to cater for a growing family – then a home improvement loan can help fund this work.

Improving your flat or house can also make the property more attractive to potential buyers as well as increasing its value.

How much can I borrow?

The amount that you can borrow on a home improvement loan generally depends on three factors. These are:

If you have equity in your home and can demonstrate that the loan is affordable to you then you can typically borrow up to around 90 per cent of the value of your home (less any existing mortgages and/or secured loans).

How long will the term of my home improvement loan be?

You decide. You can typically take a secured home improvement loan over a term of between 3 and 25 years. You can choose the term of your loan in order to ensure that the repayments are affordable.

What interest rate will I be charged?

The interest rate that you will pay depends on two main factors.

Firstly, the proportion of your property’s value that you borrow will affect your interest rate. Generally speaking, your interest rate will be lower if you are only borrowing a small proportion of the value of your home (a low ‘loan to value’). If you are borrowing a high loan to value, you will generally pay a higher rate of interest as this represents riskier lending for the bank or building society.

Your previous credit history will also affect your interest rate. If you have always made payments to credit on time then you are likely to benefit from a lower rate than someone who has experienced credit problems in the past.

How do I apply?

You will have to complete a simple application form. This will require you to provide some personal information and provide details of your property, your income and your outgoings. The lender may then need additional documents from you in order to confirm the information you have provided on the application form.

The lender may credit score your application although they will require your consent to do this.

I own my property jointly. Will the other person have to apply for a home improvement loan with me?

Yes. If you own your home jointly with someone else then you will need to make a joint application. You will both need to complete and sign the application form and both of you will have to provide identification and any other documents that the lender requires.

You will both be responsible for the loan repayments and for the loan balance.

How will I receive the money?

You choose. You will typically have the choice of receiving the funds by bank transfer (directly into your account) or, alternatively, you may receive the funds by cheque.

What can I use the money for?

Whatever home improvements you want to undertake.

One of the main benefits of a home improvement loan is that it can be used for a wide range of projects.

For example, you may want to increase the living space of your property. So, a home improvement loan could help fund a loft, garage or basement conversion or help you build a single or double storey extension or add a conservatory.

A loan can also be used for other internal improvements such as a new bathroom or kitchen, interior redecoration or new carpets and furnishings. It can also help you pay for essential improvements such as new windows and doors, repairs to the roof or a new boiler or central heating system.

As well as improving your home for you and your family, many of these home improvements also help to increase the value of your property.

What are the advantages of home improvement loans compared to other types of borrowing?

There are three main advantages:

Secured home improvement loans are often cheaper than unsecured loans and credit cards. As the lender has some security (sometimes called ‘collateral’) for the loan, the interest rates that apply to such loans are often lower than other type of borrowing, meaning that you can save money.

In addition, you may be able to obtain a home improvement loan for a larger amount than another loan which is useful if you are undertaking an expensive project such as a loft conversion or an extension.

Many secured home improvement loans can also be taken out over a longer term than other sorts of loan. This means you can spread your repayments over a longer period, making your monthly repayments more affordable.

I have paid for home improvement using an unsecured loan or credit card. Can I now take out a home improvement loan to pay this off?

Yes. You may have used high interest unsecured loans or credit cards to meet the cost of your home improvements. In order to reduce your outgoings on a monthly basis, you may now wish to consolidate these with one secured home improvement loan.

I have had bad credit in the past. Am I still eligible?

Yes. Many lenders will consider an application for a home improvement loan even if you have experienced credit problems in the past.

If you have a County Court Judgment (CCJ), defaults, arrears, or missed payments on loans or credit cards then there are many lenders that will still consider a home improvement loan. Bear in mind that you may pay a higher interest rate than applicants with a clean credit history.

Can I repay my home improvement loan early?

Yes. You should check the terms and conditions of your specific loan as some lenders will charge a penalty if you decide you want to pay your loan back early. Any penalty charged will generally relate to the amount of interest you would have paid had the loan run its full term.

What happens if I want to move house?

You will have to repay your home improvement loan when you move home. If you are buying another property then you may be able to take out another home improvement loan on the new house.

What happens if I can’t make my monthly repayment?

You should speak to your lender immediately to discuss your repayments and when you can expect to bring your account up to date.

If you fail to keep up your repayments on a secured home improvement loan then your property is at risk and you could lose your home. If you don’t pay unsecured loans then you could be taken to court and forced to repay the money through a County Court Judgment (CCJ). This also adversely affects your credit rating.

Other resources - homeowner loans, www.homeequityloans.co.uk, second mortgage.