Preparing for any major home refurbishment should begin with the often lengthy process to secure the funds. Words: Gillian Upton.
Before you get too carried away with fantastic plans for re-modelling your home, it’s best to start early in securing the money to pay for it.
High street lenders, such as banks and building societies, are unlikely to agree to an unsecured loan for more than £50,000 or, if they do, they’ll make you pay dearly for it.
Secured loans give you better options if the sums are beyond £50,000 which, let’s face it, they are likely to be. See our typical costs for various refurbishment projects in the box alongside.
Increasing your mortgage is the most common form of secured lending and it’s advisable to talk to your existing mortgage provider first. How much they’re prepared to lend will be a function of the loan to value ratio, ie how much equity you have in your home. They will also check affordability for the loan.
Equity release is another form of secured lending. It used to be a dirty word in financial circles not so long ago due to the ‘balloon’ payments on the final value, but they exist less and less now.
In the last few years the providers have had to become more competitive and it is a viable option. Jenny Tozer, Partner and Investment Manager at LGT Vestra explains: “The perception of equity release has changed. The rates used to be 5-10% but now they’re 3-5%, so they’re still more expensive than a mortgage but then they’re doing you a favour which is why the rate is higher.”
Another form of secured loan is available if you have a portfolio of stocks and shares, and once again a provider will look at the loan to value ratio.
Tozer believes that since stamp duty and legal fees have increased, banks and building societies have realised that there’s more money to be made out of existing home owners improving their homes as they are adding value.
WHERE THE TIME AND MONEY GOES
CREATING A BASEMENT
Average time taken: Allow up to 40 weeks
Average cost: £250,00 – £500,000 + VAT
SIDE RETURN AND REAR EXTENSION
Average time taken: Allow 12-16 weeks
Average cost: From £100,000 + VAT
Average time taken: Allow 10 weeks
Average cost: From £55,000 upwards + VAT
TIPS TO ENSURE YOUR BUILD RUNS SMOOTHLY AND ON TIME
DIG DEEP AND MITIGATE FINANCIAL RISK
With controversy over problems with some basement digs, it’s wise to speak to a specialist construction insurance broker before you begin a basement project. The insurance will cover you when any damage is caused to your or your neighbours’ property and that damage cannot be attributed to negligence on the part of the contractor, architect or engineer.
“It is possible for the home owner to buy a policy to insure against this risk,” says Rob Harrison of Upsher Harrison. “This is more commonly known as ‘Non-negligence cover’.”
This is essential if there is a party wall. It is also advisable to notify your own household insurance company of the impending works.
Aside from non-negligence cover, also check that the contractor has the correct all risks cover and is insured for excavations to the depth they are going. “I would expect a minimum of £5m cover working in London,”