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Save or borrow for home improvements?

(8 Posts)
peacefuleasyfeeling Thu 05-Feb-15 00:22:08

Just a quick straw poll: Would you consider borrowing to finance substantial home improvements?
We bought our home knowing we wanted to make some significant (and fairly costly) changes over time and have been saving to this end ever since, playing the long game, as it were. If all goes to plan, we should be good to go in 3 years time. A couple of people have said they think we're nuts for not borrowing and adding it to the mortgage. We aren't stretched at the moment, mortgage is just over 20% of take home income and we save a fair bit every month. Our current fix is coming to an end so we'll be looking to find a new deal anyway, but now I'm wondering whether there would be any benefit in discussing further borrowing with our lender to finance the works?
I should say that there is no actual rush, house is perfectly liveable in (if a tad tired and dated as it seems daft to do much superficially now, prior to building work, especially with small children), we don't mind the wait. But it would be so much fun to start sooner smile
What would you do?

TalkinPeace Thu 05-Feb-15 13:31:17

both
you need to have a clear repayment plan if you are going to extend your mortgage - assuming they even let you.

I did a mixture - ended up doubling my mortgage, but it only rose to 50% of the value of the finished house

BUT
that was before the changes in mortgage rules

Babelange Thu 05-Feb-15 13:44:49

Hi there. I thought I'd just share what we did this year and tell you the rationale behind it. We carried out c.�60k of work; we had/were gifted �38k (inheritance, no savings as such). We financed the rest using an unsecured loan and a 0% credit card. We are agressively paying off the credit card with the view to it taking just a few years to clear. The rest was on a loan which although the same term as the mortgage (10 years) and slightly higher interest would be much easier to pay off/refinance if we can.
The only risk I can see in waiting as you plan to would be if eg. VAT went up - I don't have a crystal ball but if it went up from 20-25% (I guess pretty unlikely) this would be ���! Or if all the materials/labour costs more money in the future. Also, you'll want to pay for work on a credit card anyway to ensure that you get the payment protection for big ticket items (eg. saniware) and get points/cashback.
The risk in going ahead now would be cash flow if you do it in the way we have. If you add it to the mortgage and you have 20/30 years left, then this is going to cost you ��� in the long-term but appear manageable month by month. I expect most people wouldn't scrutinise the detail as they expect that their house will increase in value so wouldn't see the large interest payments over the longrun.

Spindelina Thu 05-Feb-15 13:48:49

Work out the difference between the rate you get as a saver and the rate as a borrower. Multiply the amount you need to save by that difference - that's an indication of the annual cost of borrowing to do the work now.

Do you want to pay that much money to get the work done sooner? Or is that enough money to do something else - go on holiday, whatever - on which you place more value than living in a nicer house sooner?

We are saving at the moment, but will probably extend the mortgage by a chunk in the next few years (depending on employment situation and childcare costs).

Spindelina Thu 05-Feb-15 13:51:43

Actually, don't work out the difference. Just take your mortgage rate and multiply it by the amount you need. And that's your annual cost for the term of your mortgage. Which might be worth it to you. Or it might not.

peacefuleasyfeeling Thu 05-Feb-15 19:53:00

Thank you, everyone. Some food for thought. We'll have to have a good think and a few chats in the coming months.

CogitoErgoSometimes Sat 07-Feb-15 13:52:16

I had a similar dilemma last year. I was 4 years from paying off the mortgage in full and the total amount owed was <10% of the property value. I doubled the borrowing, extended the term and used the money released (plus some savings and investments) to pay for substantial improvements. My justification is that I could afford the extra borrowing & my savings were earning nothing, whereas the house is in a desirable area where prices are on the rise

PeanutButterOnly Sat 07-Feb-15 19:46:35

We remortgaged and borrowed more to do a garage conversion and downstairs alteration, kitchen etc. and now can't find a builder! sad

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