How to get a home improvement loan without equity
May 16 2022
May 16 2022
If your home is in disrepair and in need of upgrading, you may have considered borrowing from a lender. Depending on the complexity of work required, home improvements will set you back anything from £500 – £50,000 upwards.
When it comes to home improvement loans, there are two main types of borrowing; secured and unsecured. Typically, secured lenders will be looking at how much ‘equity’ you have in your home when considering your application. Secured loans are usually for when you require larger amounts of borrowing.
• Secured home improvement loan – requires you to have equity because you need to secure the loan against an asset, such as your home
• Unsecured home improvement loan – doesn’t require you to have equity because it isn’t secured against anything
A secured loan is usually repaid over a longer term. As you are offering your home as a security against the borrowing, you are likely to be offered a lower interest rate. However, there is a greater risk with secured borrowing compared to unsecured borrowing, as ultimately your home may be repossessed if you do not keep up your repayments.
We recommend that you seek independent financial advice before borrowing.
Simply put, your equity represents the amount of your home that you actually own. This can be calculated by subtracting how much you owe on your mortgage from the property’s current market value.
For example, if your home is worth £250,000 and your mortgage is currently £150,000, you would have £100,000 ‘equity’ in your property.
There are two ways you can improve your equity: by decreasing your borrowing or increasing your property value.
To decrease your borrowing, you can overpay your mortgage if this is affordable for you. You should always pay more expensive credit first however. Maximising your household income could lead to extra cash to overpay your mortgage. To ensure that you’re claiming money that you’re entitled to, you can do a benefit check online.
To increase your property value, you need to improve your property. You can seek advice from a local and reputable estate agent, to give you a valuation and recommendations on what can be done to increase the value of your home. Borrowing for home improvements can support you to spread the cost of your home repairs.
Without equity, your secured borrowing options may be limited. You can consider unsecured borrowing if you have the affordability to repay over a shorter term. For more significant repair projects, such as roofs or structural repairs, you may need to borrow upwards of £15,000 meaning a secured loan may be a sensible option.
For secured borrowing, usually lenders will assess the available equity in your property and offer you an interest rate based on your risk.
Our loans are funded by local councils. This means that we can offer you a low interest rate.
Your local council policy will determine who is eligible to apply for a loan and the home works that are eligible. For more information, please contact us.
Representative Example (4% fixed interest rate, Representative 4.2% APR). Loans are subject to status and are typically protected by a Title Restriction
A home improvement loan may be a good option to enable you to spread the cost of home repairs, adaptations, improvements or energy efficiency measures.
Secured lending may give you access to better rates than unsecured credit, however if you are thinking about borrowing for home improvements, you should consider the overall expense of having a longer-term loan.
It’s also important to consider the cost of work before applying to take out a loan, and we always recommend customers obtain two or more quotes from reputable contractors before committing.
There are a few alternative options to finance home improvements if you don’t have equity in your home. The best option to consider would be to use your savings or if the work isn’t urgent, try to save funds and use that. By doing so, you won’t need to borrow or pay back any interest.
You can look into unsecured personal borrowing or borrowing through a credit card but be mindful that credit cards can often incur higher interest rates and may also charge an annual or monthly fee.
Seeking independent mortgage advice from a trained financial advisor will help you to understand your remortgaging options. You could borrow more through your current or a new mortgage provider and then use the additional funds for home improvements.
