Whether it’s renovating your kitchen, making much-needed repairs or putting in a swimming pool (lucky you), home improvements are rarely cheap. It can be difficult to find the spare funds to cover the cost of improvements, especially if you’re still paying off your mortgage.
But if you’ve already built up equity in your home, you can use it as collateral to apply for a secured loan. You can then use the funds from this loan to cover the cost of your home improvements.
To help you work out whether a secured home improvement loan is right for you, here’s what you need to know.
A secured home improvement loan, or homeowners loan, is a type of loan that requires you to use the equity you own in your property as security against the loan’s cost.
Because this security reduces the risk for the lender, you can usually borrow a larger sum of money compared to an unsecured loan – typically upwards of £25,000. Loan terms are usually longer too, say up to 25 years or even longer, and interest rates are often more competitive. This can make secured loans a good option for expensive home improvements.
However, secured loans should always be considered with care because if you fail to make your repayments, your home could be at risk. In the very worst cases, the lender could sell your property to recoup its money, so you must be confident you can make your loan repayments before agreeing to anything.
When comparing secured home improvement loans, you’ll need to know exactly how much you need to borrow to cover the cost of your planned renovations. The more you borrow, the more you’ll have to repay, so it’s crucial to ensure you can afford this.
Generally, the more equity you have in your property, the more a lender is likely to let you borrow.
You’ll also need to think about the term of the loan. Choosing a longer term reduces your monthly repayments and potentially makes your loan more affordable in the short term. But overall, a longer loan term means you’ll be forking out more in interest. Do some calculations to work out which is the best option for you.
Other important factors to consider are the interest rate charged and whether it’s fixed or variable. Variable rates mean your interest rate and monthly repayments could go up (or down) at any time, which could potentially make your repayments unaffordable.
Finally, check what fees you might have to pay. Some secured loans charge an arrangement or product fee, while others might charge a fee if you repay your loan early. Some lenders also only offer secured loans through a broker, in which case you’ll be charged a broker fee.
In addition, you might have to pay a valuation fee if the lender wants to send someone out to assess your property’s value rather than carry out a desktop valuation.
Yes, you should still be eligible for a home improvement loan even if you have bad credit. However, the loan amount offered might be smaller, and you might have to pay a higher interest rate than someone with a good credit rating.
The advantage of a secured loan is that it uses your existing equity as security, so lenders are more likely to approve your loan on this basis. Your credit rating will have less of an impact on whether you’re approved than it would with an unsecured loan.
You can get secured home improvement loans from a range of specialist providers and lenders, including:
Many large banks and lenders also provide home improvement loans, though these are generally offered as unsecured loans:
With a secured loan, you’ll generally be able to borrow more than you would with a personal, unsecured loan, which means it may be more suitable for those looking to carry out expensive home improvements. However, the amount you can borrow will be limited by how much equity you have in your house. You’ll usually need to have at least 20% to 25% equity, but the more you have, the better.
You can work out how much equity you have in your home by dividing your mortgage’s outstanding balance by your home’s current market value. This gives you your loan-to-value (LTV) ratio. If your LTV was 80%, you’d have 20% equity.
The cost of home improvements and renovations can also vary dramatically, so it’s important that you have a firm idea of the likely cost of improvements before you apply for a loan. If you borrow less than you need, you may need to take out an additional loan to cover the expenses, and if you borrow too much, you’ll likely end up paying more in unnecessary interest.
Home improvements can help increase your home’s market value, but you would not realise any of this potential value unless you were to sell the property. Consider carefully whether it’s worth getting into debt and risking the equity you have in your home just to make improvements and whether those improvements justify the loan’s cost.
Unsecured personal loans. If you don’t have enough equity in your house to cover a loan, you could consider an unsecured loan to fund your home improvements. An unsecured loan does not require any asset to be used as security, so it’s less risky for you. However, because it’s a higher risk for the lender, interest rates tend to be higher than secured loans. You also won’t be able to borrow as much – typically between £1,000 and £25,000 – and loan terms are usually between 1 and 7 years.
Credit cards. If your home improvements are only a few thousand pounds, you might be able to put this on a 0% purchase credit card and spread the cost of your monthly repayments interest-free over several months. The best purchase credit cards offer 0% periods for almost 2 years, but you must aim to clear your debt within that time. Otherwise, interest kicks in at a much higher rate.
If you’re considering applying for a £200,000 personal loan, check out this guide which explains how to compare lenders and find the best deal.
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If you’re considering applying for a £100,000 personal loan, check out this guide which explains how to compare lenders and find the best deal.
Short term secured loans let you borrow up to £2.5 million with more competitive rates but also help keep your overall interest costs down.
Find out how fast you can get approved for a secured loan, and compare a range of secured loan quotes now.
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