Remortgaging is one of the most common ways to make a loft conversion affordable. What’s more, because a loft conversion can typically add a significant amount of value to a house, you’re free up cash in order to add long-term value to your home. With interest rates currently at a record low of 0.25%, and rumours that rates may even drop to 0%, now is a perfect opportunity to consider remortgaging for a loft conversion.
How does remortgaging work?
Plenty of people who’ve been on a fixed-rate mortgage for several years and then seen themselves go onto their lender’s Standard Variable Rate (SVR) will be familiar with the process of remortgaging. The SVR can often have a higher amount of interest attached to it than your previous fixed rate, and it’s not guaranteed to stay the same – it follows the Bank of England base rate. As such, standard practice is to either agree new terms with your current lender, or shop around for a better deal. The latter is the process of remortgaging.
Remortgaging is also advisable for people who want to add a loft conversion to their home, though. If you’ve been living in your house for some time, you’ve likely paid off a chunk of your mortgage and for many people the house has gone up in value too. Perhaps your home is now worth £500,000 but your mortgage is £250,000. This means you have equity of £250,000 – a figure which you can extend your mortgage against.
Remortgage and get a loft conversion
The first step is to price up your loft conversion. This is something that we can help with, by providing a quote to you within just 7 days after a consultation at your home. Once you’ve got your quote, you know how much you’ll need to pay.
From here, get an independent expert to value your property and work how much it would sell for. You now know how much equity you have against your mortgage, and thus how much you’ll be able to borrow.
You can either approach your current mortgage provider and speak to them about increasing how much you are currently borrowing. Alternatively, if you’re coming to the end of a fixed rate contract or already on a variable rate, speak to a mortgage broker who’ll be able to find you the best deals available whilst also increasing how much you are borrowing.
You will need to undergo the typical mortgage application process, proving income, affordability etc. and a mortgage consultant will likely want to value your home too. However, once the process is complete you’ll have additional cash freed up which you can then spend on your loft conversion.
Using our example, if you get quoted £40,000 for a loft conversion, you can approach your lender and other mortgage providers (through a broker, ideally) to free up that’s locked into the equity you have in your home. This would increase your mortgage to £290,000. However, as a loft will increase the value of your home, you may even profit from this. A loft conversion, on average, adds 21% to the value of a home. That means a £500,000 home could be worth upwards of £600,000 after completion of the loft conversion.
Another approach – remortgage after getting your loft conversion
If you’re in a position where you can afford to get your loft conversion paid for without remortgaging, then we’d advise doing so. That’s because you can always remortgage afterwards if cash is tight.
Why do this? Simply, it’s because the mortgage rates you’ll get are much more favourable. Depending on the value of your home, the equity-to-mortgage ratio is important.
Take our example once more. The house with its added loft conversion is now worth £600,000 and you’re still on a £250,000 mortgage. Adding £40,000 to your mortgage by remortgaging will mean you still end up with a mortgage of £290,000 but your equity will be over 50% of the house still. If you remortgage to pay for the loft before getting it completed, you’d be looking at rates based on holding equity of 42% of the house.
Lenders give better rates depending on how confident they are that you’ll pay it off, so remortgaging with a higher percentage of equity means you’ll get better value on your loan.
Now is a great time to consider remortgaging
With interest rates hitting record lows, this is a great time to free up equity and build the loft conversion of your dreams. Get a consultation with us, and we’ll spec out and quote for your loft within just 7 days.