Person calculating how to finance their house extension

For any home renovation project like a loft conversion or house extension, understating how to finance it and the different options that you may have at your disposal is a crucial first step into making the smartest possible decision. After all, many of them have a big impact on your current and your long-term financial positions. 

Often, the most common route taken is with equity release. Remortgaging helps you to access funds without any major immediate financial impact and simply extends your mortgage period or increases the repayment values, without touching current funds. Alternatively, using your savings or a personal loan leaves this intact and of course, adds the financial impact to you directly.  

Different people and different situations favour different options, and they’re all more than viable. With that said, these are the five most commonly used routes used to finance a house extension or home renovation project, and their advantages and disadvantages too. 

Option 1: Using Savings 

Saving is often the first place people look to when researching how to finance their house extension or loft conversion project. It does make sense initially after all. There is no interest, the money is already there, and there is no 3rd party involved. It’s clean and easy, and it’s one of the main reasons people use some if not all of their savings to contribute to their project. That of course isn’t the end of the story either. 

On the other side of the coin, using your savings does have downsides too. Depending on the value of your savings, you may not have enough to cover the whole project, for example. It also means that you are leaving yourself without those savings (which seems obvious), but even that can have an impact. That could take away your nest egg, or emergency fund. It could be better used elsewhere. It could be more valuably used invested in something else… The list goes on.  

Option 2: Using Equity Release (Re-mortgaging) 

Another widely used way to finance a home renovation project is with equity release or remortgaging your property. This is essentially where you’ll be getting a new mortgage and using it to pay off the previous and keep some of the equity earned through either appreciating value or through simple repayments over a period.  

Remortgaging is often the preferred way to go about getting a large project like a home renovation carried out. This is because it means that there’s no need to pay anything immediately, and the interest rates are often extremely low compared to other means of borrowing.  

The downside however is that your mortgage repayments may be higher or for a longer duration than currently agreed. That of course means paying back more overall, which is something people may want to steer clear of. With that said too, however, remortgaging may also provide better rates so there are pros as well as cons in this sense. 

Option3: A Second Mortgage 

In addition to remortgaging, another option that can be utilised to finance your home renovation project is a second mortgage. The main point to consider right off the bat with this method however is that many mortgage providers won’t actually even consider applications for less than £25,000 – £30,000, and even these are low. The standard tends to be around the £50,000 mark, which many smaller projects may not reach. 

If a second mortgage is a possibility for the size of your project however then it’s a good time to look at the next steps involved in the process. The main drawback of this method, for example, is that of course there is now an entirely new monthly expense to factor into your financial situation. This may last for a number of years too depending on the deal that you choose.  

Conversely, they also of course have their benefits. A second mortgage means that you are free from being subjected to any early repayment fees that you might face by remortgaging, your current mortgage is healthy and left intact, and you may be able to get great rates too. Anything is possible after all. 

All in all, it’s an option that needs very careful consideration but can be a great option to have on the table. 

Option 4: A Loan 

A personal loan is the final borrowing option well discuss that you may have available to you that actually gives a new aspect of flexibility. Personal loans mean that your loan is not secured against your property and instead, relies solely on you. That is great in terms of the security of your home as an asset and the possibility of repossession, but not great in terms of the loan being an unsecured loan. 

Despite that, however, there are still a number of different loans out there available to help you finance your extension or conversion project. Homeowner loans exist exactly for this purpose, but any personal loan can be used for it. They also often mean that you have a repayment option that is easily available and ready to use whenever you, like for the most part, although that is subject to the terms of your particular loan. 

Since a personal loan is largely unsecured, the biggest issues that come along with using this route is that you may well be subjected to worse interest rates on the whole. Although there are certain sweet spots with loans depending on how much you borrow, the lack of security for the lender does almost always mean the interest rates will be greater, but that is of course a double-edged sword. 

Conclusion 

Overall, how best to finance a house extension, loft conversion, or any other kind of project is down entirely to you, your financial situation, and your preferences. All of these options are more than viable. It largely comes down most to if you would rather borrow money or use your own assets and what the best way to manage the cost will be for you, both now and in the future. 

There are multiple different companies that are offering financial guidance for this very situation, so make sure to do your homework to ensure you can enjoy your new project both now and for years to come as they deserve.