A recent survey by Hiscox found that, when it comes to home improvements, a new kitchen will typically add 5.5% (or, £12,400 based on the average UK house price of £226,071) to a home’s value – making it a sound alternative to simply putting the ‘for sale’ sign up on your doorstep and moving house.

However, there’s no escaping the fact that these projects require money to get off the ground – regardless of how major or minor the planned updates are. Of course, one way to fund home updates is to use savings – but for many homeowners, this isn’t always an option. Securing a home improvement loan could be, though.

To find out all you need to know regarding house renovation loans and whether they’re the right avenue for you, read our guide right here.

What is a home improvement loan?

A home renovation loan is generally an unsecured personal loan (although secured equivalents, which typically allow for higher borrowing amounts, are available) which is paid back in full with, typically, a fixed rate of interest, and within an agreed time period over a series of monthly installments.

Unlike secured loans, an unsecured homeowner loan isn’t guaranteed against your equity or personal assets. This does have its advantages, as you won’t risk losing your home or other assets if you’re unable to repay the loan – but unsecured loans do tend to come with higher interest rates, as lenders see them as a greater risk.

The amount you can borrow with these types of personal loans can vary from as little as a few thousand pounds to £25,000 and beyond (with secured loans generally allowing you to borrow more than £15,000) – providing you meet the lender’s criteria.

 

If you were looking to take out £15,001.00 over the course of 3 years (36 months) using a personal, home improvement loan for your brand new kitchen installation, with a fixed APR rate of 3% along with a representative APR rate of 3%, you could expect to pay back an additional £693.92 on top of the initial £15,001.00 you borrowed. In total, this would make for monthly instalments of £435.97 over 36 months, for a total repayable amount of £15,694.92.

Are you eligible for a home improvement loan?

Home improvement loans are, in principle, available to anyone, but loan amounts, interest rates and terms vary widely based on your personal financial circumstances – so it’s wise to shop around to find the most suitable option for you.

Typically, the personal home renovation loan market is utilised by either joint or individual homeowners with higher incomes, who are seen as a lower risk due to better financial credentials for loan repayment. With this in mind, the best low-interest home improvement loans with attractive payment plans are awarded to candidates who fit into this category.

What factors affect the interest rate on your loan?

While they may not have access to the best home improvement loans available, even those with a low credit score can also be eligible – but expect higher home renovation loan interest rates and less flexibility when it comes to the types of loans available to you.

Remember, the advertised interest rate isn’t always the guaranteed rate you’ll receive as, legally, lenders only need to give 51% of applicants this advertised rate. It’s therefore very important to bear in mind the following factors to help you get the lowest available rate:

  • Your credit history – as long as you meet the remaining eligibility criteria (i.e age, UK residency) your credit history will affect the rate you’re quoted, so make sure you take a look at your credit rating yourself before you begin your search 
  • Your age – you must be aged 18 or older to apply for loans, with loan providers setting their own cut-off period. It’s worth bearing in mind that the age group most commonly found to be searching for home improvement loans is the 65 to 75+ demographic – and with most cut-off periods falling between the ages of 60 and 74, it’s important to shop around and ensure you’re applying with a lender able to accommodate you 
  • Your existing bank account – in some cases, if you have an existing current or savings account with the bank or lender you’re looking to take out a loan with, they’re likely to offer you better interest rates as a result of being a loyal customer 
  • Your income – producing accurate information when disclosing your income will help lenders decide if you can afford to pay back the loan by taking your monthly outgoings into consideration

 

Whatever type of loan you’re interested in, regardless of your age, try and find a reputable, soft search tool that won’t harm your credit score on your search for a loan best suited to you.

Advantages of home improvement loans

Whether you’re looking to fund a costly home extension or a new, budget-friendly bathroom, house renovation loans can be a very appealing borrowing solution. With repayment and interest rates fixed for the entire term with a secured home improvement loan, it can make it easier for you to budget for the additional monthly costs and keep track of your outstanding debts.

Most personal loans also offer the option for you to spread the payment over 12 to 60 months, giving you greater flexibility on when you pay it back. While this can make it more affordable when it comes to borrowing larger amounts or working on a tight budget, it’s worth noting that you’ll end up paying more in interest fees the longer the loan term is.

In addition, some lenders also offer the option to take a payment holiday, typically for 2-3 months, whereby you can skip repayments. This can offer welcome relief when unforeseen expenditures crop up, but the payment holiday should always be agreed with the lender in advance – otherwise you risk affecting your credit score with missed payments.

Disadvantages of house renovation loans

There are various factors that can affect the amount you’re able to borrow and the rates you’re required to pay – but generally, the best home improvement loan rates are available to those who pay back the amount over 3 to 5 years. So, if you’re looking to secure finance and pay it back over a shorter period, you may be subject to less attractive interest rates.

As with any personal loan, your financial history and credit score will inevitably be taken into consideration. With that in mind, if you have a low credit rating or less-than-favourable financial circumstances, you may not be deemed eligible or you may be forced to pay above-average rates.

A further disadvantage of applying for personal credit is that this leaves a record on your credit report each time you apply, as well as a record of any rejected applications. For this reason, before you dive into applying for multiple loans at once, it’s recommended you shop around and exercise caution to ensure you’re being realistic with the applications you submit. Too many credit requests in a short space of time will make you a higher-risk prospect to lenders.

Taking out any form of loan or credit comes with an element of risk, so it pays to do thorough research beforehand and to seek financial advice along the way. With any amount borrowed, you need to be sure you’re able to make the repayments for the duration of the term – even if your circumstances change (for example, if you were to lose your job or suffer from poor health).

While unsecured home improvement loans with no equity may be the miracle solution you’re looking for, the truth is that interest rates are unavoidable in the world of credit. It may also be that this type of loan isn’t suitable for you, if you wish to borrow larger amounts or you have concerns with bad credit.

Alternatives

Home improvement loans aren’t the only option available for those looking to future-proof their homes. For smaller renovation projects, a 0% interest credit card could be a suitable alternative. This way, you can spread the cost over months – or, in some cases, a year – so long as you at least pay back the minimum amount each month.

Another cost-effective option is to open an account with an agreed overdraft, or add an overdraft onto your existing current account. Interest-free overdrafts will usually only cover a few hundred pounds, so, while this may not be a viable option for larger-scale improvements, it’s an effective way to cover a spot of short-term redecorating.

As a final measure, you could consider remortgaging your home and paying back the loan over a much longer period. But be careful, as it’s worth noting that a personal loan offering a higher APR for a shorter period of time will save you a lot more money than paying back your loan over a lengthy period of time with a lower APR.

Regardless of how you decide to take out a loan, make sure to change your insurance policy if the structural layout of your home changes – as this could potentially increase the value of your home.

There are other loan options available, such as secured homeowner loans, and our blog is packed with loan guides and budgeting tips galore – helping you make the best decisions for a brighter financial future.

Remember, if you find yourself unable to cope with financial pressures, help is available – call the free national debt helpline at 0808 808 4000 or check out the Citizens Advice website here.