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How to pay for home improvements
From decorating to big building projects, it costs money to make a house a home.
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If you’ve got savings in the bank, or your home improvements can wait until you do, you could avoid a lengthy repayment term and borrowing costs.
But borrowing could be an option if you:
- Can’t afford to wait – for example, if your boiler is broken.
- Would lose higher interest paid on savings, e.g. from an ISA.
- Want to keep savings to cover future expenses.
- Can borrow at a low interest rate.
- Want extra protection on credit card purchases.
You could use a mix of savings and credit to pay for home improvements, helping you to keep your borrowing and costs to a minimum.
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If you’re aged 55 or over, and have been paying into a pension, you might be able to release a tax-free lump sum from your pension fund to pay for 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 grants
You might be eligible for support with some 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 widening doorways, installing a stairlift, improving bathroom access and upgrading your heating system.
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.
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If you’re approved for a loan, the money you borrow will be transferred into your current account, ready to spend on your home improvements. You might 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, over a term to suit your budget – typically 1-7 years. At the end of that term, the loan will be repaid in full, just as long as you’ve made all of the required payments.
If interest rates are fixed your monthly repayments will be too, making it easier to keep track and understand your borrowing costs.
Other lenders might offer loans with variable interest rates. If you choose one of those, just know that your monthly payments could change over time.
You might be able to make overpayments on some loans without facing early repayment charges, meaning you could repay any underspend early, reducing your loan term and the amount of interest you pay overall.
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Depending on the amount of credit available to you, a credit card could be a flexible way to spread the cost of home improvements. Just be aware of the borrowing costs which might apply, including interest fees and other charges.
An introductory or promotional rate could offer low or even 0% interest on card purchases. To limit your interest costs, plan to repay your balance before any offers expire and higher standard interest rates kick in.
It’s worth knowing, if you miss a payment or go over your agreed credit limit, you could lose any promotional or introductory interest rates, so if you do use a credit card, manage it carefully.
Also be aware, 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 further 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 pay off your 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 some credit cards you may be able to request a money transfer, moving funds from your credit card to your UK current account. That 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 might be charged daily interest, with will be detailed in the terms and conditions of your account.
Some banks and building societies will allow you to use an unarranged overdraft, but your credit score could be 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.
Just be aware, the amount you can borrow with an overdraft might 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 might not be the most cost-effective way to manage long-term borrowing. Rather than bigger renovations or building projects, which might take considerably longer to repay, an overdraft could help you to cover smaller unexpected costs.
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You might be able to borrow more against your current mortgage, or remortgage with a new lender to cover the cost of home improvements.
However, this could depend on:
- Your age and whether you’d be extending your mortgage into retirement.
- Whether your lender will let you add to your mortgage for this reason.
- 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 might consider borrowing more on your mortgage. But it’s really important to consider the impact of future changes in interest rates, and your financial circumstances.
Because your mortgage is secured against your home, it could be repossessed if you don’t keep up with your repayments. That in itself might be a reason to choose an alternative borrowing option.
A typical mortgage term is 25 years but, in the UK, you might be able to get a mortgage for anything from 6 months to 40 years. Over a long period, your borrowing costs could really mount up, 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 could 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 purely essential.
You must seek support from a mortgage adviser before you apply to borrow more or change your mortgage to cover the cost of 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 usually 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.
To decide whether equity release is right for you, it’s worth speaking to a qualified adviser. They’ll be able to explain the details and help you to explore 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.
Home improvement tips
Below are some things to consider before starting any work on your home: