Finding the best home improvement loan for you

Loans for home improvement are ideal for those looking to renovate a property. Use our guide to learn more about how they work and everything you need to know to get the best deal.

What is a home improvement loan?

It’s money that’s borrowed from a bank, building society or a direct lender that’s used for home improvements. You can use this type of loan for:

  • house renovations
  • new kitchen or bathroom
  • building an extension
  • loft or garage conversions
  • buying a second property

What types of home improvement loans are available?

There are two loan types available for financing home improvements. You can either borrow against your house and take out a secured loan or choose an unsecured home improvement loan.

The type of loan that’s best for you will depend on your financial circumstances and the type of home improvement you want to carry out.

Secured home improvement loans

Also known as homeowner loans or renovation finance, these loans work by borrowing money secured against your home. To qualify for a secured house improvement loan you need to own or hold equity in a property.

This type of loan is suitable for major projects or structural repairs. You can borrow large amounts so interest rates are lower and you’ll repay the loan over a longer term.

Personal home improvement loans

Unsecured personal loans are a simpler and more straightforward method of borrowing. You don’t need to provide collateral or have a mortgage.

This type of loan is more suited to smaller home improvements such as a kitchen installation, bathroom fitting or redecoration.

Interest rates tend to be higher unless you have a good credit score, but repayment terms are shorter and there are no fees so the overall cost of the loan could be cheaper.

How do home improvement loans work?

It depends on the type of home improvement loan you choose, but all types of renovation loans work in the same way as other borrowing methods so you’ll repay what you owe over a period of time with interest added.

Secured home improvement loans

This type of house improvement loan is offered as either a fixed rate, variable rate or short-term fixed rate, which is a combination of the two. Here are some other key features:

  • Only homeowners with a mortgage are eligible
  • The repayment term can be anything up to 35 years
  • The amount you can borrow will depend on the equity in your home
  • You’ll pay interest for the duration of the loan term
  • Credit and affordability checks will be carried out prior to approval
  • Various fees may be applied, e.g. valuation, search, broker fees
  • Your home is at risk if you can’t keep up with repayments

Unsecured home improvement loans

This type of home improvement loan works like a personal loan, so the interest rate is fixed and you’ll repay the loan on a monthly basis.  Here are some other key features:

  • Borrow between one and ten years
  • Borrow between £500 and £25,000
  • You’ll need to show evidence of a regular income to repay the loan
  • Credit checks will be carried out prior to approval

How much can you borrow for home improvements?

The amount you can borrow will depend on your financial circumstances, your homeowner status and whether you apply for a homeowner or personal loan.

Personal loans generally allow you to borrow up to £25,000, although interest rates can be higher if you don’t have a good credit rating and you’ll have to repay within seven years.

Secured house renovation loans tend to be for anything between £10,000 and £100,000, although you can borrow more if you have enough equity to release from your property.

How much do homeowner loans cost?

How much you pay for a homeowner loan will depend on a number of factors. The eventual cost will depend on:

  • the amount of money you borrow
  • the length of time you need to repay the debt
  • the rate of interest
  • any loan fees charged

Speak to a broker or get a free online quote to find out much you could borrow and how much it will cost you.

How can I find a home improvement loan?

Most high street banks and building societies offer loans for home improvement at competitive rates.  If you have a good credit history it’s worth contacting your own bank to see what they offer.

Alternatively, get quotes from online lenders or use a broker who will compare loans from a panel of lenders and offer you the cheapest rates. Always shop around to compare interest rates and other features like fees and eligibility criteria.

Comparison sites are a useful way to compare different lenders online before you apply, but if you’re looking for a secured home improvement loan it’s a good idea to talk to a broker.

Can you get a loan with bad credit?

Yes, if you have a mortgage and equity in your home, it is possible to borrow against your house and get a secured loan for renovations.

In many cases, it could be easier than getting a personal or unsecured loan but that will depend on the amount of risk the lender is prepared to take.

Sometimes, a secured loan can be used to consolidate debt to help you manage your repayments better.

What are the benefits of home improvement loans?

Home improvement loans are a great way to spread the cost of house renovations and DIY projects that would otherwise be difficult to afford.  They can be a cheaper alternative to credit cards or using an overdraft and can ultimately add value to your home.

Renovation finance can:

  • Fund home improvements to increase the value of your property
  • Allow you to spread the cost of building work and materials
  • Cover short term cashflow when projects don’t go to plan
  • Help you manage your project finances in a controlled way

What are the disadvantages of home improvement loans?

Whilst there are lots of benefits to using a loan for house renovations, there are also reasons to be cautious:

  • You could damage your credit score if you default on repayment
  • If you default on a secured loan, you risk your home being repossessed
  • Fees and penalties for late or missed payments could increase your debt
  • Paying off your loan early could mean paying early repayment fees
  • Some loans have variable interest rates so your repayments could increase

If you can afford to pay for DIY projects or refurbishments with cash or savings, use those first.  Bear in mind, if your financial circumstances change and you struggle to repay your house improvement loan, you could hurt your credit score and put your home at risk.

How to choose the best home improvement loan

Before you apply for a home renovation loan it’s a good idea to compare what’s available to you so you get the best loan for your circumstances.

Borrowing money over a long period of time is a big commitment, so here are some key considerations before choosing a home improvement loan:

Think carefully about:

  1. How much you need to borrow: The amount you need should determine whether you take out a secured or personal loan. Don’t borrow more than you need and if it’s less than £25,000 a personal loan could be a better option.
  2. Whether you want to risk your home: Decide whether it is worth borrowing against your home or can you raise funds another way. Do you have other collateral if you can’t keep up repayments?
  3. Whether you are eligible: The amount you can borrow and the interest you pay will depend on your credit record so it’s important to know your score before you apply for a loan. Do a soft search before applying to avoid hard searches on your credit report.
  4. Whether you can afford it:  You need to be sure you can afford any repayments now and in the future.  Secured loans are a long term commitment and your financial circumstances could change.
  5. How long you need to repay the loan: Work out what you can afford to repay each month and opt for the shortest term.
  6. How much home equity you have: You’ll need an up to date valuation of your property and the outstanding balance on your mortgage if you choose secured borrowing.
  7. Your credit history: It’s worth checking your credit report for mistakes and carrying out a soft check to find out your credit score and your chances of loan approval.

There is a risk you could lose your home if you fail to keep up repayments so think carefully and make sure you understand all the risks before committing to a secured home improvement loan.

Home Improvement Loans FAQs

Can I take a homeowner loan repayment holiday?

It will depend on the lender and your circumstances. Bear in mind that pausing payments will increase the overall cost of your loan as you’ll take longer to repay it.

Can I sell my house if I have a secured loan?

If you have a home improvement loan secured on your property, you will need to get permission from your lender to sell your house.

What do I need to apply for a home improvement secured loan?

You will need to prove your identity and homeownership credentials. You will also need to have a valuation on your property.

  • Mortgage statement
  • Evidence of identity, i.e. passport or driving licence
  • Evidence of income and expenditure
  • Details of any outstanding debts inc. credit cards, store cards or other loans

Are secured home improvement loans bad for your credit rating?

No, in fact, it’s a good way to boost your credit rating. If you’re approved for a secured loan and have poor credit but make your repayments in full and on time, you will be taking steps to help build your credit score.

If I take out a home improvement loan, can I use it for other things?

Yes, once you have the money in your bank account, it’s up to you what you do with it.  However, your home is at risk if you default on a secured loan, so only take on a renovation loan if it increases the value of your home.

What does home equity mean?

Home equity is the value of the property portion that you own if you have a mortgage. An easy way to understand equity is to subtract the amount you owe from the value of your home. So, if your home is worth £300,000 and you still owe  £100,000, the home equity is £200,000.

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