Home improvement loan question

Transform_IT · 24 Jun 2014 at 11:07

Hi guys,

My wife and I have been together for 10 years now. We have recently moved into our second home and it is in dire need of some refurbishment and repairs. We have two young children and have a great family life. We got our house extremely cheap in comparison to the street average and plan to be here for a very long time. The house needs things like a new kitchen, bathroom, extension roof fixing, driveway finishing the list goes on... oh and we intend on creating two extra bedrooms by doing a loft conversion. I am quite handy myself and have a few friends in the trade however we need money for materials.

In order to fund these plans we require a £25,000 home improvement loan. We have looked into our monthly financial commitments and know we can easily afford the extra outgoings.

I have been looking around at personal loans and have seen interest rates as low as 4.3%. This is if you borrow anything under £15k.

I was wondering:

Would it be best to get two separate loans for £12.5k

Or

Make a joint application for one of the higher rate ones for the whole £25k?

The repayments over 10 years on two separate loans would be approx. £230 a month. Where as the repayments for the £25k over 10 years would be £279 a month.

The reason I am toying with the idea of two separate loans is because I am aware the advertised interest rates are subject to circumstance. If for whatever reason I was to be offered a higher interest rate when applying for an individual loan then it might not be worth it. However doing this could potentially go against me on my credit file and if I was to then submit a joint application it may result in me being offered an even higher interest rate or even worst being declined.

Our end goal when all of the refurbishment work is complete (approx 2 years) would be to re-mortgage the house to its new value and pay off the remaining amount on the loan. We would then concentrate heavily on paying off our mortgage as quickly as possible.

We purchased our house for £100,000 and the average price on our street with the above work complete is approximately £150k. We are one of three houses that haven’t had a loft conversion done and had the kitchen/dining knocked through to make a kitchen diner. We currently have £85,000 reaming on our mortgage.

Any advice would be greatly appreciated.

Thanks,

Transform_IT

Syla5 · 24 Jun 2014 at 12:21

How long will it be before you are out of term on your current mortgage?

You might find that a remortage would be preferable. £85k + £25k would give you a loan to value of 74% based on what your saying of average house price in the street.

Based on lender and deal on a 25 year mortgage you can get rates starting at around the 2.5% area for 2 year fixed deals, ranging up to around the 3.6% mark for 5 year fixed deals.

This would also allow you to stretch the payment over a longer period, and it would give you flexibility to overpay more easily then a loan.

Might just be worth getting an estate agent round to give you a ball park value, or checking on rightmove/mouseprice for recent sold prices for a true indication of what you could expect your property in its current state to be valued at.

alx · 24 Jun 2014 at 12:53

Syla5 said:
How long will it be before you are out of term on your current mortgage?

You might find that a remortage would be preferable. £85k + £25k would give you a loan to value of 74% based on what your saying of average house price in the street.

Based on lender and deal on a 25 year mortgage you can get rates starting at around the 2.5% area for 2 year fixed deals, ranging up to around the 3.6% mark for 5 year fixed deals.

This would also allow you to stretch the payment over a longer period, and it would give you flexibility to overpay more easily then a loan.

Might just be worth getting an estate agent round to give you a ball park value, or checking on rightmove/mouseprice for recent sold prices for a true indication of what you could expect your property in its current state to be valued at.

This. It's deffo worth looking at remortgaging to get the extra £25k as there's a fair chance the interest rate would end up being significantly lower.

The Dread Pirate · 24 Jun 2014 at 13:03

Talk to Tim "The tool man" Taylor and Al!

[ASSE]Hinchy · 24 Jun 2014 at 13:04

Syla5 said:
How long will it be before you are out of term on your current mortgage?

You might find that a remortage would be preferable. £85k + £25k would give you a loan to value of 74% based on what your saying of average house price in the street.

Based on lender and deal on a 25 year mortgage you can get rates starting at around the 2.5% area for 2 year fixed deals, ranging up to around the 3.6% mark for 5 year fixed deals.

This would also allow you to stretch the payment over a longer period, and it would give you flexibility to overpay more easily then a loan.

Might just be worth getting an estate agent round to give you a ball park value, or checking on rightmove/mouseprice for recent sold prices for a true indication of what you could expect your property in its current state to be valued at.

This is what I did. 9 months into the 36 month term, we required an additional loan due to previous roof works being far more expensive than expected and taking up most of the initial improvement part of the mortgage loan that we had planned to use on other parts of the house.

I went to Santander who gave me the following options:

1. Separate loan to pay the amount off over say 5 years at similar rates the OP has quoted.

2. Arrange for an additional loan over the full mortgage term (30 years less 9 months) at a higher rate (6.99%) and at the end of my initial 3 year term it would change to the rate of the main mortgage previously agreed (2.49%) and become one big lump sum to pay off at the same mortgage rate.

I went for the second option as spreading the additional amount over the full term obviously made the monthly payment increases easier and in two years time, it will be getting paid off at a rate of around 2.5% and therefore making very little difference to my monthly mortgage.

I hope the above is clear and useful for you..

Transform_IT · 24 Jun 2014 at 13:13

Thanks for the information guys, this will definately help!

I have until September in my current mortgage and then I can swap or change products.

The only problem I have though is the house in its current state is probably still only worth £100,000 (bare shell). Therfore if I want £25k out of my house wouldn't it make my mortgage over 100%LTV which isn't possible? OR can banks loan extra if the said home improvements will increase the value of the property?

Syla5 · 24 Jun 2014 at 13:22

Transform_IT said:
Thanks for the information guys, this will definately help!

The only problem I have though is the house in its current state is probably still only worth £100,000 (bare shell). Therfore if I want £25k out of my house wouldn't it make my mortgage over 100%LTV which isn't possible? OR can banks loan extra if the said home improvements will increase the value of the property?

You will have to speak with lenders to get specifics of if they will lend on future value, the main problems are that they cannot guarantee you will spend the money on the house and then they would be in significantly different risk position in respect to the lend.

[ASSE]Hinchy · 24 Jun 2014 at 13:28

I'd be surprised if many will lend on future value.

I'd perhaps look at delaying the more unimportant improvements and focus on those that will increase the value, mainly the loft conversion. Then you can look at getting a further additional loan for the driveway and bathroom perhaps?

You're like my girlfriend as she just wants to do the whole house at once and it just isn't feasible sometimes