Home Improvement Loans

Well-executed Home Improvements can do wonders for the market value of a person's home. Is it any wonder then that Home Improvement loans have soared in popularity over recent years? This guide provides our visitors with some additional background information into the market, which we hope you'll find useful.

Who do Home Improvements Loans apply to?

We've all heard the phrase "An Englishman's home is his castle", but do we really fully appreciate the significance of this statement? A large proportion of the UK population now own their own home and this number is increasing all the time. Despite all the negative press regarding interest rate rises, falling house prices and repossessions, the vast majority of us in the UK still have the desire to be homeowners.

Most people, when purchasing a house, require some type of mortgage to assist with the purchase, whether they are first time buyers or someone moving up to a larger home. Buying a house is undoubtedly an extremely expensive exercise, what with having to find the required deposit amount, valuation and survey fees, moving costs, stamp duty, disbursements and legal fees, there is often little or no money left to do all the home improvements that were initially planned. Of course, home improvement plans are not just limited to those who have recently purchased their home, many homeowners who have lived in the same house for a number of years may wish to make home improvements, but do not have the necessary cash available to fund the project, despite having a large amount of equity within their property.

How are Home Improvement Loans used?

A home improvement loan is ideal for someone who is in one of the situations described above as it releases the required funds to the homeowner, allowing them to complete the necessary work without having to worry about finding the necessary cash as they go along. There are many households in the UK where a family is living with bare, cracked plaster walls, an un-tiled bathroom where the shower doesn't quite work yet, or some other unfinished home improvement project where the individual tried to pay for the improvements from their own resources, but ran out of money half way through!

Home improvement loans can be used for any purpose where the money is being spent on the property in question. This could range from building a complete extension on the property, fitting a new bathroom or kitchen, landscaping the garden, carrying out building repairs, to simply redecorating the house or fitting new carpets, for example. Indeed, any project which adds value to the property would be considered for a home improvement loan.

Unsecured Home Improvement Loans

Home improvement loans can take a number of forms. For smaller amounts of borrowing, an unsecured loan could be taken. In this case, the lender would not take any real interest in what the money was being used for, as they would not take any security over the property. Due to the fact that no security is taken on an unsecured loan, these are likely to have higher interest rates than one which is secured on the property and also be for a shorter term of years. Someone with a poor credit history is unlikely to be accepted for an unsecured loan, as this would present too high a risk for the lender.

Secured Home Improvement Loans

The more common type of home improvement loan would be a secured loan. This could take the form of a mortgage, re-mortgage, or further advance from the existing mortgage lender, or it could be taken as a free standing secured loan on the property in addition to any mortgage already in place. This would be particularly useful where there is a redemption penalty payable on the mortgage. In all cases, where a secured home improvement loan is taken, the lender will take a legal charge over the property. This provides the lender with security to be able to claim any losses they incur, against the property, should the borrower default on the repayments. This reduces the risk to the lender and therefore allows them to charge lower interest rates than would normally be possible with an unsecured loan.

Secured Home Improvement Loan lending factors

Due to the fact that a secured home improvement loan takes an interest in the property in question, the lender would be more likely to take a greater interest in the exact nature of any improvements to be made, as this could affect the value of the property, in a positive or negative way. In the instance of larger projects and particularly in the case of building works, the lender is likely to require detailed plans which outline the exact nature of the work to be carried out. The lender normally carries out a valuation on the property, to assess whether or not there is sufficient security in the property, before a loan is granted. They may also wish to carry out a re-inspection of the property after the project has been completed, to ensure that the work has, firstly been done and secondly, completed to the required standard.

Different lenders are prepared to lend to different levels on home improvement loans. Most would be prepared to lend at least up to 85% of the value of the property, with many allowing larger loan to value amounts. Some lenders are even prepared to lend up to 125% loan to value, although this level of lending is likely to be reflected in higher charges and interest rates.

If a home improvement project is likely to add significant value to the property, the lender may well take into account the value of the property once the work has been carried out and use this valuation as the basis for the home improvement loan. In this case, funds may be withheld until the work has been completed, or released in stages as the work progresses. This would normally be the case where an extension is being built on a property and the value prior to the work is insufficient to grant the loan.

Where to apply and points to remember

Home improvement loans are widely available in the marketplace today from Banks, Building Societies, mortgage lenders and loan companies. There are also many independent brokers and websites, which can help individuals in obtaining home improvement loans. Before applying for a loan, a potential borrower should research the options thoroughly and also work out just how much the project they have in mind is likely to cost. This ensures that you won't be borrowing too much or too little and also that you will be paying a sensible amount for your own particular circumstances. Good luck with your home improvements and I hope you enjoy the results!