By Bright Advice
Following a year where we’ve spent more time in our homes, Brits are choosing to renovate their properties to suit their tastes and lifestyle. If you’re looking to take on a significant cost to refresh your home, there are several ways you can fund it.
According to Aviva, one in five UK adults have put home-buying plans on hold. While for many this is a short-term plan, nearly one in ten expect to postpone plans by at least three years. Combined with the shift towards working from home and social distancing restrictions, it’s not surprising that people are choosing to invest in their property.
If you’ve been thinking about taking on a home improvement project, what are your options for funding it?
- Use your savings or investments
If you have savings that will cover the cost, this is the obvious choice. This means you can take on a project without having to worry about paying for it at a later date. However, you still need to be aware of the long-term impact – would taking money out of an ISA mean you can’t reach other goals? Or would withdraw from investments affect your income later in life? In most cases, you can balance spending now with long-term plans, but reviewing your finances first means you can move ahead with confidence.
You should also review where you’ll take the money from. You can contribute £20,000 a year to an ISA but may not be able to replace the savings you’ve withdrawn, for example. Or taking money out of a pension could mean you face an unexpected tax bill.
- Put the spending on a credit card
Credit cards are a useful way to invest in your home now and spread out repayments. However, keep in mind that you could be paying interest which may be higher than the alternatives. High-interest rates can make credit cards an expensive way to borrow. If you have a good credit rating, you may be able to get a 0% interest credit card, effectively allowing you to borrow money for free, assuming you pay off the full amount before the 0% period ends.
- Choose “buy now, pay later” options
More businesses are offering shoppers the choice to buy items now and pay later, including the option to make monthly repayments. This can be tempting as it allows you to improve your home now and incorporate repayments into your regular outgoings. However, like credit cards, they can prove expensive and it’s important to review the interest rate. Again, some providers offer a 0% interest deal. You will also need to make sure you can keep up with repayments and be aware that it could affect your credit score.
- Take out a home improvement loan
For larger projects, a loan may be more suitable. Home improvement loans will typically offer a competitive interest rate when compared to credit cards or other types of loan. You don’t necessarily have to choose the provider that your mortgage or bank account is with – shop around to find the best deal for you. Taking out a home improvement loan will usually involve a hard credit check and could affect your credit score. You should ensure you can keep up with repayments, as the loan could be secured against your home.
- Remortgage your home to borrow more
Whether this is an option will depend on how much equity you hold within your home. Increasing the amount you borrow through a mortgage can mean you receive a lump sum that you can then use to complete home improvements. However, keep in mind that your monthly payments will rise, or your mortgage term will be extended.
Before you make any decision, you should weigh up the long-term impact. Please get in touch if you have questions about how home renovations can fit into your wider financial plan, whether you’re thinking about taking money from a pension or searching for a new mortgage deal.