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How to pay for home improvements
Making your home a safe and comfortable place to live could be a sound investment.
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If you’ve got savings already, or your home improvements can wait until you do, the main benefit is that you won’t have monthly repayments and interest charges to worry about.
However borrowing could be another option if you:
- Can’t afford to wait – for instance, if your roof needs urgent attention.
- Want to keep savings as a buffer to cover future expenses.
- Would lose higher interest paid on savings, e.g. from an ISA.
- Can borrow at a low interest rate.
- Want extra protection on credit card purchases.
Of course, you could use a mixture of savings and credit to pay for your home improvements, helping you keep your borrowing and interest costs to a minimum.
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If you’re over the age of 55 and have been contributing to a pension, you may be able to access a tax-free lump sum from your fund, using that to fund home improvements. However, it’s important to consider the future impact of this, leaving you with less income when you are older.
You should speak to a fully qualified pensions adviser, regulated by the Financial Conduct Authority, before deciding whether taking funds from your pension is the right thing to do.
Government support
You might be eligible for support with certain home improvements, for example, to make your home more accessible for residents with a disability, or to boost energy efficiency and reduce carbon emissions.
Disabled facilities grants
If you have a disability, you could apply for government support to adapt your home to meet your needs, including upgrading your heating system, widening doorways, installing a stairlift and improving bathroom access.
Energy Companies Obligations (ECO) scheme
Aiming to reduce carbon emissions and fuel poverty in the UK, the ECO scheme in England, Scotland and Wales works with energy companies to improve the energy-efficiency of homes. From insulation and solar technology, to upgrading boilers and heating systems, the work could also be subsidised.
If you're planning to use credit
When you apply for credit, lenders contact their preferred credit reference agencies to check your credit record. This may highlight any potential risks associated with offering you credit, and can influence the interest rates and any amount of credit you’re offered.
All lending is subject to an assessment of your circumstances.
With any form of borrowing, fees and interest may apply. To limit these costs, you should only borrow what you can reasonably afford to repay, over the shortest possible term.
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If you’re approved for a personal loan, the money you borrow will be sent to your current account, ready to cover the costs of your home improvements. You may even be able to borrow a little extra than you need to pay for finishing touches, or to help you manage unexpected costs.
A personal loan could offer you a fixed borrowing amount of at least £1,000, over a term to suit your budget – typically 1-7 years. At the end of that term, your loan will be repaid in full, so long as you’ve made all of the necessary payments.If interest rates are fixed your monthly loan repayments will be too, making it easier to keep track and understand your borrowing costs.
Other lenders may offer personal loans with variable interest rates. If you choose one of those, just be aware that your monthly payments could change over time.
You may be able to make overpayments on some loans without incurring early repayment charges, which means you could repay any underspend early, potentially reducing your loan term and the amount of interest you pay overall.
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Subject to the credit limit available, and the interest rates which apply to your account, a credit card could be a flexible and cost-effective way to pay for home improvements.
An introductory or promotional rate could offer low or even 0% interest on card purchases. To limit your interest costs, it’s worth aiming to repay your balance before any offers expire, at which point your standard interest rates will apply to any remaining balances.
Note also, if you miss a payment or go over your agreed credit limit, you could lose any promotional or introductory interest rates. If you do use a credit card, it’s important to manage it carefully.
Unlike a personal loan, there’s less structure around your repayments, which could make it harder to budget, especially if you use your credit card to make other transactions.
Unless a 0% interest rate applies to purchases, to avoid paying interest on purchases, you need to pay off your statement balance in full and on time every month.
You can repay as much as you want when you’re able to, or as little as the minimum payment each month. Just be aware that if you only pay the minimum, it’ll take longer and cost you more to clear your credit card balance.
Where the total purchase price is over £100 and up to £30,000, credit card purchases will usually be covered by Section 75 of the Consumer Credit Act 1974.
On selected cards you may be able to request a money transfer, moving funds from your credit card to your UK current account. This could be handy if you need to make cash only purchases – just make sure you’re employing or buying from someone you feel you can trust.
It’s also important to know that a transfer fee may apply, and purchases made using cash, debit card or bank transfer won’t be covered by Section 75.
Before you make payments to anyone from your current account, it’s worth making sure the payment details are genuine. There’s a form of fraud, where emails including bank details are intercepted and changed by criminals, so you unconsciously send funds to the wrong account. This can be avoided by making a simple phone call, or requesting a printed invoice including the correct payment details.
Refer to our fraud hub if you’d like more information about protecting yourself.
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If you use an overdraft on your current account, you could be charged daily interest, which will be defined in the terms and conditions of your account.
Some banks and building societies will allow you to use an unarranged overdraft, however your credit score could be negatively impacted if you do.
Instead, you could apply for an arranged overdraft on your current account. You’ll only be charged daily interest as and when you use it.
It’s important to know that the amount you can borrow with an overdraft may be more limited than other types of credit and, if you use the full amount, you won’t have that safety-net to fall back on in the short-term.
An overdraft may not be the most cost-effective way to manage long-term borrowing. Rather than bigger renovations or building projects, which may take considerably longer to repay, an overdraft could help you to cover smaller unexpected costs.
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You may be able to borrow more on your existing mortgage, or remortgage with a new lender to borrow against your home in order to pay for significant home improvements.
However, this could depend on:
- Whether your lender will allow you to add to your mortgage for this purpose.
- Your age and whether you’d be extending your mortgage into retirement.
- Your personal circumstances and the health of your credit record.
- Whether you can afford additional repayments.
- How close you are to paying off your mortgage.
- The loan to value ratio for your property.
While interest rates are low, you may consider borrowing more on your mortgage to pay for home improvements. However, it’s important to consider the impact of future changes in interest rates and your personal circumstances.
Because your mortgage is secured against your home, it may be repossessed if you don’t keep up with your repayments. That in itself may be a reason to choose an alternative borrowing option.
The typical duration of a mortgage is 25 years, although in the UK you may be able to get a mortgage for anything from 6 months to 40 years. Your borrowing costs over a long period could be significant, even at a low interest rate.
To limit your costs, you should only borrow what you can reasonably afford to repay, over the shortest possible term. Another borrowing option may be cheaper over a shorter term, even if the interest rate is higher.
It’s worth considering if the home improvements you’re planning will add to the value of your property, are an investment in your own comfort, or are simply essential.
You must seek support from a mortgage adviser before you apply to borrow more or change your mortgage in order to fund home improvements. You should explore all financing options to find the one which suits your individual circumstances.
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Usually only available to homeowners aged 55 and over, you may be able to release tax-free cash to pay for home improvements, helping you to live more comfortably whilst staying in your own home.
This generally takes the form of a loan, secured against your property. You won’t have to pay anything until you pass away, or move out of your home into long-term care.
Before deciding on whether equity release is right for you, you should speak to a qualified adviser. They will be able to explain what’s involved and tell you about other options. We can put you in touch with a Scottish Widows Later Life Lending Advisor, or you can find a qualified adviser through MoneyHelper and the Equity Release Council.
How much can you afford to spend?
It’ll help to list out all of the things you need to budget for, including any quotes you’ve been given by tradespeople, and any extras you’ll need to buy in order to finish your home improvements.
You can shop around or change specifications to keep your costs down, but what you don’t want are any surprise costs you’ll struggle to cover part way though, especially if you can’t pause works without making life more difficult. You won’t want to be without a kitchen or bathroom for too long.
Once you’ve figured out your budget, you can turn your attention to how you’re going to cover the cost of your home improvements.
Planning your home improvements
Whether it’s a simple paint job, essentials like a new boiler, or a larger renovation, below are some things to consider before starting any work on your home:
DIY
It can help to minimise costs if you do certain things yourself, such as painting or preparatory works, but unless you really know what you’re doing and are qualified, leave serious tasks like plumbing and electrics to the trained professionals.
Keep a contingency
If you’re undertaking serious renovations, it may help to have some extra money set aside, which you could dip into if the unexpected happens. You never know what nasties could be lurking behind plaster, under floors, or in your attic.
Trades
It’s worth booking tradespeople in advance, as they often have a waiting list – or at least the good ones do. Spend some time reading reviews and asking for local recommendations. It’s also worth getting several quotes for the work needed, and make sure you ask for a written list of what’s covered within that price, helping you to avoid unexpected extras.
Pay as you go
You may need to pay a deposit upfront, but otherwise it’s worth paying in instalments for bigger projects, or at the end of smaller jobs, giving you some power if the work isn’t completed to your satisfaction.
Set a clear budget
Figure out what you can reasonably afford to spend in advance, and stick to that as closely as you can. Once you’ve factored in structural work, any remaining funds may lead your choices on fixtures, surface finishes and accessories.
Communication is important
Keep the conversation going with on-site tradespeople, so you’re aware of any complications as they arise. It’s also worth voicing any concerns you have, giving tradespeople a fair chance to correct anything you’re not happy with.
Where next?
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