For all the resilience the UK economy has shown, there is no doubt that this year's ISA season is set against a backdrop of uncertainty. Whatever the pros and cons, Brexit, and a lack of clarity on what our future economic relationship with the EU will look like, has left us at a crossroads.
The benefits of home improvements & how to fund them
At Lending Works, one constant since we launched in January 2014 has been that home improvement loans have been one of the chief loan purposes among our borrowers. In fact, more than one in six of those approved for loans use the money for home improvements, and this trend is gradually increasing given that, of the near £5million which has been borrowed for this purpose, more than £3million has been in the last 12 months alone.
This isn’t necessarily a surprise, given that recent surveys suggest Brits are increasingly favouring home improving over moving; allowing us to infer that many believe such enhancements add significant value in the current housing market.
Therein lies a key difference in the psyche specific to home improvement loans too. Although it has dwindled in recent years, there remains something of a stigma in the eyes of a few relating to unsecured debt. We, of course, don’t see it that way, and every day we see people using personal loans for dynamic purposes that improve their lives – both in the short and long-term.
But that said, there is no doubt that taking out a loan for the purpose of enhancing your home is easier to reconcile with yourself. That’s because it will almost certainly add asset value to your property, and often such that the value added exceeds the cost of the loan itself, thus making it a worthwhile investment.
While having their applications underwritten, our DIY-savvy borrowers have informed us of all kinds of improvements that they plan to do. But among the most popular are kitchen and bathroom upgrades, extensions and loft conversions. Below we take a look at the merits of each as an investment…
- Kitchen enhancements: Kitchens are often the focal point of the house, and are arguably the key selling point. If you’re willing to go the whole hog and put in an entirely new kitchen, on average you’d be looking at an expenditure of roughly £8,000 to £10,000. However, a recent study by Move with Us suggests it can add as much as 6 per cent to your property value.
- A new bathroom: The same research by Move with Us found that an extra bathroom can jack up the value of your home by 5-6 per cent, although the costs can vary considerably depending on size, the types of tiles, fittings etc. You’d generally be looking to keep the total cost under £6,000 if you can though.
- Building extensions: Again, there is huge variation when it comes to extensions in terms of required outlay and return, and it depends what you want to do. Nevertheless, extensions have become all the more popular since the coalition government relaxed rules on planning restrictions in 2012 – something the current parliament has extended until 2020. It’s a given that you should ensure you are up to date with the planning permission regulations in your local area, but given that some reports suggest that extensions can add up to a quarter in value, it’s understandable why so many are taking the plunge.
- Loft conversion: Again, it is Move with Us who have it that the addition of an extra bedroom courtesy of a loft conversion adds 9 – 10 per cent to the value of your home on average, while a similar study by Nationwide found that increases of 20 per cent were commonplace. The great appeal of a loft conversion is that it doesn’t eat into existing living space, although it’s important to bear in mind restrictions relating to the staircase, ceiling height, insulation and fire safety. The price tag could also be anywhere between £15,000 to £30,000, but this one is proving to be a winner among Britons.
Financing home improvements
Clearly renovations are an expensive exercise, and more often than not such projects will require professional expertise; whom, by and large, are not noted for their charity when it comes to quotes for jobs. Should you not be able to fund it with savings, you do have multiple options. Credit cards are a convenient way of doing so, but can be a reckless choice given that APRs can be as high as 20 per cent, making it a costly form of debt.
Many home improvers are also inclined to remortgage their house in order to access the funds they need, and negotiating a good rate with a secured loan like this is certainly viable. But the process can be littered with paperwork, and will seldom be concluded in less than two weeks.
For us, the merits of unsecured home improvement loans speak for themselves. Rates are at record lows; as a homeowner you’ll be in the box seat to get a good deal (especially if you have a sound credit rating), and the process is quick and hassle free. What’s more, with a platform such as ours, you can settle your loan early at no extra cost, giving you the flexibility to make your debt work for you while the value of your home goes through the roof.
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