As house prices rise across the UK, many homeowners are now electing to improve rather than move. With the cost of living putting pressure on most household budgets, how do you fund your loft conversion or extension project? Check out our six top tips for financing to make your home improvement plans a reality.
Fund your loft conversion by saving up cash reserves
With material prices currently highly volatile across the UK and wait times for products and fittings disrupted by the conflict in Ukraine, delaying your loft conversion project and giving yourself some time to save may not be the worst option. Not only does it give you time to plan your project in more detail and seek out quality builders, but it also means you can proceed at a pace that suits you, rather than having to wait for funding to be approved and secured via another means.
When you fund your loft conversion or extension using your own savings you can also avoid debt obligations and subsequent financial pressures later on.
Using a secured loan to fund your loft conversion
Secured loans can be a good option for those looking to beef up their loft conversion budget. As the name suggests, these loans mean your possessions are used as collateral – so a home or vehicle can be used to help secure the agreement with your bank.
One obvious disadvantage to these kinds of loans however is that your assets may be repossessed if you fail to keep up with your repayments. The application process for these loans often takes longer too, as your assets must be evaluated beforehand.
Take out an unsecured loan to cover loft conversion costs
An unsecured loan, also known as a personal loan, may be a suitable option for those who can access them, as it means you’re not putting any of your assets at risk should you default.
However, be aware that you will have to contend with a higher interest rate. These can vary according to how much you borrow and your bank’s terms, but rates in excess of 13% APR are not uncommon. The terms surrounding these loans also tend to be more inflexible, with very little scope for renegotiating them and fines imposed for late or even early repayment. The repayment periods are often much shorter too – just a few years in many cases.
Unsecured loans are also harder to access for those with a poor credit rating, so it’s worth assessing whether you’re in the right financial position to pursue this option.
Making loft conversion payments using a credit card
If you’re looking to cover smaller costs associated with your loft conversion project, such as redecorating or furnishing your new space, then using a credit card could be a viable option.
Different banks provide different options in terms of repayment, with some offering cards which must be repaid at the end of every month, and others offering 0% interest cards which allow you to defer payment for a fixed period (normally 12 months) without incurring any extra interest on the debt.
Credit cards provide fast and easy access to funding and can even provide the opportunity to earn cashback rewards and accrue points which can be redeemed for things like air miles.
On the other hand, they are typically only available to those with good credit scores and should you fail to make repayments it’s likely yours will suffer. It can also be easy to overspend when paying via credit card, so a keen sense of judgement is key to keeping your home extension costs under control when using credit cards.
Remortgaging your home to fund your loft conversion
Remortgaging your home may be an option if you need to secure a large amount of funding for a large conversion or extension project. This is the process of moving your mortgage from one product / provider to another and borrowing extra money against the value of your home.
What’s more, repayments can often be scheduled over the term of your mortgage. Alternatively, some providers will also be open to discussing new repayment terms.
Bear in mind however that remortgaging will likely extend your mortgage term, and the process itself could prove lengthy. Some providers may charge early repayment fees when you remortgage, which could eat into the funds you are seeking to free up.
As with any mortgage product, this option leaves you vulnerable to having your home repossessed should you fail to keep up with repayments – so exercise caution and be sure that you can afford the new repayments should you choose to remortgage to fund your loft conversion.
Funding your loft conversion with a home equity release plan
Home equity release plans are available to older homeowners and represent an interesting alternative to taking out additional debt on your mortgage to fund your home extension.
Generally speaking, they are available in two distinct forms which deal with your debt in differing ways:
Much like a remortgage, lifetime mortgages allow you borrow against the value of your home. Unlike standard remortgaging, these options allow you to maintain ownership of your home and make no monthly payments on the debt until after you enter long term care or pass away. Funds are subsequently recouped by the lender when your home is eventually sold after the plan concludes.
While you are not at risk of having your home repossessed so long as the plan is still in effect, you are still borrowing against the value of your home to receive a tax-free lump sum, which you can use to complete your loft conversion. Interest on this borrowing will accrue for the duration of your plan at a pre-agreed rate.
In some circumstances, lenders may allow you to make payments during your plan to cover the interest charges (but not the debt itself). Others allow you to release equity in staged payments, or to ringfence some of your home equity to guarantee that there is some value left at the end of the plan.
Far less common than Lifetime Mortgages, Home Reversion Plans effectively sell all or part of your home to a lender, and then allow you to continue living in it rent-free for as long as you like.
At the end of your plan the lender sells your home and takes a portion of the resulting funds in accordance with how much of your home was sold to them. These plans are riskier as you do not retain full ownership of your home.
Home equity release plans are a new and continually evolving financial product that could make significant funds available to you for your home extension project. However, they will reduce the value of your estate over time – so thought should be given to how much of an inheritance you would like to leave to your family members when your plan concludes.
Ready to start your loft conversion project?
Make sure you read our ultimate guide to loft conversions to learn more about the process. At the FMB, you can find expert guidance for your project on building regulations, permitted development and planning permission, as well as party wall agreements.
If you have secured the funding required to make your loft conversion plan a reality, find vetted and independently inspected Master Builders in your area today and start getting those quotes in!