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Equity Release For Home Improvements
An online survey from the ‘Good Home Inquiry’ found that the majority of people approaching later life in England see home renovations as a priority in the next two years, so is Equity Release for home improvements suitable?
You can use Equity Release for home improvements such as kitchen renovation, loft conversions as well as future proofing your home making it more comfortable to stay in as you age.
Here we take a look at the two most important factors to consider when considering Equity Release for home improvements. In the first place, is it the most suitable form of financing for home improvements and secondly what practical considerations should you make when it comes to renovating your home? Let’s take a look at the financial considerations first…
Is Equity Release for Home Improvements the best loan to get?
Equity Release is a great way to fund home improvements. Typically with a lifetime mortgage the amount of equity you can access depends on your age, health and property value, so your credit history isn’t a factor.
With Equity Release you’ll have access to more money and have options about how you’d like to repay the loan amount … it’s also worth considering other ways to fund home improvements through traditional lenders:
- Secured loan – A loan secured using your property as security, but separate from your mortgage deal. Rates offered are typically more favourable than unsecured loans but will be based on your individual circumstances.
- Unsecured loan – Sometimes called a personal loan, it’s credit provided by financial institutions based on criteria like employment history, repayment capacity, income level, profession and credit history. The lender doesn’t use any of your assets as a form of security for the lender.
- Remortgaging – Not to be confused with releasing equity through a lifetime mortgage or home reversion plan, remortgaging is a different financial product. Remortgaging involves renegotiating your existing mortgage with your current, or a different, mortgage lender (sometimes through mortgage brokers) to increase your level of borrowing. It usually occurs when your fixed period comes to an end and you get a deal with more favourable interest rates and monthly payments.
- Home improvement loan – Can take the form of unsecured lending or a loan secured against your assets, and is the name given to lending used to pay for home improvements. Lending terms are typically longer than that of personal loans with the most favourable interest rates and monthly repayments usually only available to people with strong credit histories.
Equity Release considerations for when considering home improvements
One of the first things to think about if you want to release more equity to fund building work is how much equity you have in your home. You can easily calculate this by subtracting the value of your outstanding mortgage balance from the value of your property.
If you’ve paid your current mortgage off in full you will be able to access quite a bit on a lifetime mortgage otherwise you’ll have to repay the remaining balance of the mortgage and work with what’s left.
Another thing to consider when you pay for home improvements is that there can often be unforeseen costs involved with any type of building / remodelling / renovation work. It’s important to factor in and make allowances in your budget for these unforeseen costs as well.
Because Equity Release can be used as a significant piece of the puzzle to fund your retirement income, it’s well worth seeking financial advice to make sure you’re making the best possible use of the opportunity to release equity.
Can I use Equity Release to make improvements and increase the value of my house?
You can indeed release equity in your home, finance home improvements, and increase your property value.
Equity Release for futureproofing your home
You may choose to release equity so that you can fund renovation work and future proof your existing property. You can make additions such as:
- Add a stairlift
- Create suitable access
- Install a wet room
- Make the kitchen more accessible
- Landscape the garden to make it easier to manage
Having spent a large portion of your life in one particular house it can make sense to make alterations that will provide comfort and help meet your changing needs.
For more information on this topic see: Equity Release Calculator
Working out Equity Release costs using a calculator
If you’d like to see how much equity you can potentially release, check out our equity release calculator
How much will Equity Release cost me?
There are a lot of different lifetime mortgage options open to you for home improvements and fee’s will vary between providers. Below are some figures that help illustrate the potential costs. It’s worth noting that each example has opted not to make any early monthly repayments and only take the minimum loan value.
| Lender | APR | Minimum Amount Borrowed | Minimum Home Valuation | Early Repayment Charges | Total amount repayable without incurring ERC charges |
|---|---|---|---|---|---|
| Pure Retirement – Classic Super Lite | 2.77% | £10,000 | £125,000 | Yes – Charges for upto 15 years | £15,144.03 – paid on a loan of £10,000 |
| Canada Life – Lifestyle Select Ultra Lite Flexi | 2.79% | £10,000 | £70,000 | Yes – Charges for upto 9 years | £12,850.64 – paid on a loan of £10,000 |
| More2Life – Flexi Choice Premier Super Lite | 2.85% | £100,000 | £2,000,000 | Yes – Charges for upto 15 years | £153,264.22 paid on a loan of £100,000 |
*please note prices correct as of 25 December 2021. Please use as an indication only plan fees assumed to be £0.
Equity Release For a Home Extension
A home extension can be a large home improvement project that’s really hard to raise capital for, especially if you’ve spent a long time paying a large mortgage. Equity Release offers a viable alternative to a remortgage deal and can increase your property value significantly.
There are a number of extension options available and the cost of each will vary quite widely based on what you want, and where in the country you are.
Rear Extension
A small rear extension can be done without planning permission as long as it’s less than 50% of the original build (see all planning guidance).
Typically used to create larger and more accessible living spaces, extensions can take anywhere between 3-6 months and for ball park figures you’re looking at around £40,000 for a 5×5 extension.
Side return extensions
A lot of properties have an alleyway or a path running down the side, typically used to store bins or garden paraphernalia. Extending out, and using this space, although small, can have a transformative effect on the interior. Typically priced around £25,000 to £30,000 they take around 3-4 months to complete.
Wrap around extensions
Wrap around extensions combine a side return and rear extension, moving the outer walls in two directions. They’re great for extending your living space dramatically and really suit family living, creating huge open plan spaces where you can get a decent sized kitchen, dining area and seating space all in the same “room”. Costs do vary but typical figures are £55,000 and take around 4 – 6 months to complete.
Double storey extensions
Double storey extensions mean that you’d take one of the three shapes described above, rear, side return or wrap around and extend over two floors as opposed to one. The advantage of this is that you get double the space but not double the cost.
Typically a double storey extension only costs 50% more than a single storey one. This is because all the costs of foundations etc. are tied into the lower floor and creating an additional floor above is less work overall. Most double storey extensions will need planning permission, so that’s something to consider.
Below we’ve done some typical calculations to show potential scenarios that might occur with your home extension.
| Home Value | Equity Released | Type of Extension | Home Extension Cost | Leftover Cash |
|---|---|---|---|---|
| £150,000 | 50% – £75,000 | Rear | £40,000 | £35,000 |
| £180,000 | 40% – £72,000 | Side Return | £30,000 | £42,000 |
| £225,000 | 30% – £67,500 | Wrap Around | £55,000 | £12,500 |
| £350,000 | 50% – £175,000 | Double Storey | £75,000 | £100,000 |
Is Equity Release safe?
Equity Release as a financial product has been around for quite some time. Here we’ve put together an article to help you make sure you’re safe when looking to release equity…
Is equity release a scam? Is it safe?
Equity Release for a loft conversion
Adding a loft conversion can be a good way to improve your quality of life and increase the value of your home. The good thing about a loft conversion is that they don’t usually require planning permission as you’re improving an existing structure. So you won’t likely need a structural engineer to get involved but you will have to be mindful of the building regulations to make sure your development is permitted.
There are a few different types of loft conversions, which one is most suitable for you will depend on your home’s current state:
- Dormer loft conversion – a box shaped structure is added onto a pitched roof, creating walls that sit at a 90 degree angle to the floor. This helps to expand not only your headspace, but floorspace too.
- Mansard loft conversion – typically built at the rear of the house, it creates a flat roof and 72 degree sloping wall allowing you to maximise the available space in the loft area. Mansard Loft Conversions generally require roof alterations, therefore planning permission is likely to be needed.
- Hip-to-gable loft conversion – mostly found on semi-detached properties with an existing hipped roof. The hip is extended from the ridgeline to create a gable and a Dormer is formed to the rear of the property.
- Velux loft conversion – This is a great option if you already have a lot of loft space and want to make it more usable. You can simply add windows to the roof and add flooring and a staircase.
We’ve done some typical calculations to show potential scenarios that might occur with your loft conversion
| Home Value | Equity Released | Type of Extension | Home Extension Cost | Leftover Cash |
|---|---|---|---|---|
| £240,000 | 50% – £120,000 | £25,000 | £300,000 | £95,000 |
| £180,000 | 20% – £36,000 | £21,500 | £225,000 | £14,500 |
| £550,000 | 30% – £165,000 | £36,000 | £687,500 | £129,000 |
Equity Release for a new kitchen
A new kitchen could add up to 10% to the value of your home. Of course, the actual value added will depend on the cost of the work and the state of the existing kitchen. With the average cost of a new kitchen in the UK in 2020 is estimated to be around £8,000 (including VAT and fitting). Most kitchen renovations fall between £5,000 and £14,000 all in.
How can we help?
Because the typical minimum age for Equity Release is 55, and at 55 you can also access other parts of your pension portfolio. It’s well worth considering Equity Release as part of a larger picture… the picture being retirement, be it now or in the future.
At Joslin Rhodes we’ve been helping people achieve and maintain their dream lifestyle, worry free for over 20 years.
We spend a great deal of time asking you the difficult questions so that you can live the life you want… After all, the new kitchen or loft conversion will be nice… But why work for an extra 3, 5, 10 years when you don’t have too.
By speaking to one of our retirement planning advisors we can help you make sure your future’s taken care of.
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