The benefits of a kitchen renovation or home extension are easy to underestimate, especially in London. Here, where space is often at a premium, homeowners are willing to do whatever they can to make their properties more accommodating, more accessible, and more convenient.
However, the one thing stopping many from taking the plunge is the barrier of financing the project in the first place.
House Extension Financing Options
For some, saving the money they need to fund a kitchen or house extension in London would simply take too much time. If you want your results a little sooner, here we’re going to look at some of the financing options available to you.
Tapping into your credit
There are a host of factors that can play into your choices for financing a house extension in London, one of the biggest defining factors being the cost of the project. For renovations and extensions that are likely to cost under £25,000, your credit may offer the most accessible and cost-effective option.
Personal loans are amongst the costliest loans that you can choose but can help you immediately access more money than the other ways we’ll explore below. Which loans are available to you, how much flexibility you have on your payments, and your interest rates are, in large part, determined by your credit score.
You might be able to gain access to more advantageous loans by financing assets, such as with a remortgaging scheme. Interest rates tend to be a lot lower, though an arrangement fee at the end of the agreement could potentially add thousands to the final cost. Remortgaging does come at significant risk if you can’t manage the payments so it should be done with care.
Personal loans aren’t the only credit-based options available. For smaller projects, credit cards could be the most convenient solution. They can have spending limits as high as £30,000, but the average tends to be between £2,500 and £10,000. However, they do have a high interest rate and costly charges if payments are missed.
Another option that might be more suitable for projects that are a little lower in cost, extending your overdraft can be as simple as making a call or arranging a visit with the bank. Some banks even let you do it online. Yet, paying off an overdraft can turn out to be rather expensive.
Home improvement loans
These loans can often offer slightly less expensive terms than personal loans, but this largely depends on the size or cost of the extension or renovation. Some extensions in London could amount to as much as effectively paying off a second mortgage, with a long-term commitment that you need to seriously consider alongside existing financial agreements. As with personal loans, you can afford yourself some wiggle room on payment terms and rates by having some security on the loan, such as your property.
The loans act identically to traditional mortgages and work well for those who already have some funding saved up towards a house extension in London. If you can pay the initial deposit of 20-25%, you could benefit from slightly more advantageous fees and rates. Furthermore, renovation mortgages can also offer a fund release phasing scheme that helps you stay in control of cash flow and avoid overspending, though you need to make sure you choose the right renovations team to make good use of it.
As the name suggests, bridging loans are designed to offer you the finances you need as a bridge between one transaction and another. In the case of a home extension in London, they can act as a bridge between the extension/renovation project and the selling of that property once renovated. If you don’t have the down-payment that you might need for a re-mortgage or renovation mortgage, it can make the necessary funding a lot more accessible. However, they do come with high interest rates and problems that lead to a delay in the renovations can be extremely expensive.
Peer-to-peer lending platforms
Traditionally, it’s the banks and other established financial institutions that have largely controlled who can and can’t get a loan. They can require a lot of information gathering and hoop jumping to arrange a loan, have inflexible standards, and take some time to process. While for many, this is a burden that simply has to be shouldered, peer-to-peer lending has become a lot more diverse as of late.
Most of these platforms operate as a way to connect private investors with those looking for financing. Different investors can have different standards, meaning that you might be able to get a loan at a fixed interest rate more easily. Yet, as it’s treated as an investment, you must be able to sell the profitability of your extension or renovation to get the best results.
What determines the best methods of financing a house extension in London?
We’ve listed a lot of examples of ways to find the financing you need, but perhaps you’re still not entirely sure which method works best for you. There are different factors that can help you decide, including the following:
- Property type: What you need the money for and what you plan to do with the renovated property may limit some options or make others more fitting. An older home that needs financing to become fully habitable might require a specialist loan, as they may be considered “unmortgageable”. For investment properties and renovations or extensions aimed at selling a property, bridging loans and peer-to-peer lending may be more suitable.
- Your borrowing ability: If more standard mortgages and loans are available to you, your primary limitation is going to be how much you’re able to borrow. This depends on a range of factors, such as home value, income level, existing financial commitments, and credit history. Without good credit and a sizeable enough income, funding the entirety of the renovation or extension by yourself may be difficult.
- Existing funds and assets: You may be able to arrange a more advantageous financing agreement if you can contribute to the overall value of the loan yourself. Remortgaging and renovation mortgaging may only be available if you have between 10%-25% of the total project cost already saved up. Similarly, you may be able to leverage securities such as the property or other assets like the car to get better loan terms. However, you must always calculate your level of risk before putting any security on the line.
- Project cost: When possible, you should only borrow as much as you need to. A personal loan might have a higher minimum loan than you need for a smaller kitchen renovation, for instance, so using personal funds and credit cards could be better suited to your needs.
Which is the best option for you?
There is no clear-cut, definitive answer to how you should finance any kitchen renovation or house extension in London. Hopefully, the different options that we have outlined and the different factors for consideration listed above should help you narrow your options down some. If you’re still at a loss for which option is best, then you may want to consider getting in touch with a mortgage broker like Think Plutus who knows the best providers and what they offer.
The best approach is to know as much about the project, your needs, and your circumstances before you start applying for any finance. The project itself should be planned with every cost identified as accurately as possible, and it’s wise to keep aside some emergency funds of your own to cover unexpected costs.