How to Release Equity for Home Improvements?

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Do you wish to make your home better using a loan but feel unsure about the whole process? You’ve come to the correct place. This guide is here to clear all your doubts about home improvement loans in the UK.

You're not alone on this journey.

In this guide, we’ll discuss:

What home equity and equity release are
How to compare quotes to get the best deal
Various ways to release equity for home improvements
Things to think about before getting a home improvement loan
Pitfalls of equity release and other ways to fund home improvements

We understand that loans can be puzzling. That’s why we’ve made this guide simple to grasp.

Let’s begin and discover the best way for you to release equity for home improvements!

Can I release equity from my home for home improvements?

Borrowing against property may fund improvements, but it adds costs and risk. Improvements do not guarantee a rise in value or a return exceeding the cost.

Other common reasons to release equity are for debt consolidation, to buy another property in the UK or abroad, or pay for expensive cars, private medical bills and holidays.

How do you release equity to renovate?

One possible route is borrowing secured on the home, subject to suitability and affordability. Compare savings, grants and other funding before choosing it.

Applications for products to release equity will depend on how much equity you have and your credit score. Just because you have home equity does not mean access to credit that is secured against it is an automatic guarantee. Your personal circumstances and finances will be rigorously assessed.

By using home equity as collateral within the agreement, the lender may be able to offer a lower interest rate. If you do not repay the credit as agreed, then the lender can force you to sell your home to repay the debt, known as foreclosure.

Methods of releasing equity for home improvements

The routes below overlap: a home-equity loan or secured home-improvement loan may be a second-charge mortgage rather than a separate product category.

For later-life equity release, legal advice is a separate requirement from financial advice. Solicitors set their own fees; obtain an itemised written quote rather than relying on a universal £1,000 estimate.

Remortgage for home improvements

It is possible to remortgage to release equity for home improvements.

Remortgaging replaces an existing mortgage with a new one. It may change rates or add borrowing, but does not guarantee better terms or lower total cost; fees and early-repayment charges matter.

When refinancing for home improvements, instead of looking for a new mortgage that pays off your current mortgage, you look for one that does that and more. The new mortgage loan needs to be larger than the amount owed on your existing mortgage, and this extra amount is secured by home equity.

For example, if your current mortgage has a £100,000 balance and you have £70,000 home equity, you might look to remortgage for £130,000 instead. The first £100,000 will be used to pay your existing mortgage, and the other £30,000 will be paid to you as a lump sum loan secured through home equity.

Second charge mortgage

A second charge mortgage is when you release equity by adding a second mortgage to the same property. It is an alternative option to remortgaging for home improvements. It doesn’t mean you’ll need to pay early repayment charges because the first mortgage is not paid back earlier than agreed. You take out a second mortgage on the same property secured by an amount for home equity and then make monthly repayments to both mortgage providers.

Although you avoid early repayment fees, you may be subject to other fees when taking out a second mortgage, including closing costs when this mortgage ends. As you can see, it isn’t a straightforward choice between second charge mortgages and remortgaging.

Lifetime mortgage (Reverse mortgage)

Most standard lifetime mortgages start at age 55, but some payment-term lifetime mortgages are available from 50 and require interest payments for an agreed period. Home-reversion minimum ages and all other eligibility rules depend on the provider. Check the youngest applicant’s age and the actual product criteria. Eligibility depends on the product, age, property, credit circumstances and any required affordability assessment. Minimum property values and borrowing limits are lender-specific. An existing mortgage normally has to be cleared at completion, often using some of the released funds.

A standard lifetime mortgage does not normally release 100% of the property value. Borrowing limits depend on age, property, product and lender criteria.

A lifetime mortgage is a loan secured on your home; you retain ownership. Interest that is not paid is added to the balance. The loan is usually settled when the last borrower dies or moves permanently into care, subject to the contract. Required or optional repayments vary by product. For a plan meeting the relevant Equity Release Council standards, the right to remain depends on keeping the property as your main residence and meeting the contract terms. A no-negative-equity guarantee limits repayment to the net sale proceeds when its conditions are met; it does not stop the balance growing or make the product risk-free.

This method can be used to fund a home improvement project. It is also used to improve quality of life during retirement or for financial gifts to family members, as mentioned above by a MoneySavingExpert forum user. Most people discuss this option with family members who would be beneficiaries of the property to ask their opinion or keep them informed of their decision.

Home equity loan

A home equity loan is a type of secured loan similar to a second charge mortgage. Some experts even refer to home equity loans as second mortgages. These loans are secured with home equity but usually have a fixed interest rate.

The homeowner receives the loan as a single payment to be used as they wish, often for a home improvement project. The homeowner will pay back through monthly repayments for a fixed period until all the loan and interest have been repaid. If they fail to repay, the lender can initiate foreclosure, forcing them to sell the property to recover the loan debt.

Home equity line of credit

US-style home-equity lines of credit should not be assumed to be generally available in the UK. Ask a regulated adviser about actual UK secured-borrowing options.

Where a proposed facility allows staged withdrawals, check its specific limits, rate, fees and terms.

Repayment and interest-only periods depend on the agreement. Do not apply an overseas HELOC model to a UK product without verification.

Secured loan

Sometimes you can get a secured personal loan that uses home equity as collateral, such as a secured home improvement loan. When using home equity as security instead of a vehicle or other asset, these loans are almost identical, if not the same as some home equity loans and second charge mortgages. A financial advisor can help you make the right choice when choosing the best loan for your needs.

How the value of home improvements can affect home equity

Home equity can be affected by the added value of various home improvements. Some home improvements lead to higher home equity than others. According to Uswitch, the most profitable home improvements include extensions, loft conversions, and kitchen renovations. However, the value of your property could reduce if home improvements have gone wrong. In turn, this could mean that your home equity could also decrease.

Before you get any work done, perform a property valuation so that you can make an informed decision about your home.

As I see it, you should always research and employ reputable professionals for home improvements.

Historical housing-market context

The following figures refer to April 2023, not the current market: the cited ONS release reported an average UK house price of £286,000. Historic national averages do not establish today’s value of your home; obtain a current local valuation. See related guidance.

An increase in property value can lead to higher equity, meaning homeowners have more resources for home improvements. Furthermore, it is a good idea to consider housing market trends when making a property investment.