Best way to finance home improvements?

[Rainbowroads]

Hi, just looking for a bit of advice please to see if we are doing the right thing and also to see if I have overlooked anything or not thought of something. I have NCd and I'm aware that this might sound like bragging as we are in a fortunate position of having savings but it's not meant to. Sorry this is long but want to include all the relevant details.

We bought our current home in September last year and it needs a complete overhaul, redecoration, new kitchen, new bathrooms, windows etc. We obviously knew this when we bought it and kept back some savings and didn't increase our LTV ratio when we took out our new 5 yr mortgage. We have about £79k in cash savings (mainly in ISAs) earmarked for the work.

The building work and new kitchen etc is coming in at £70k which is a bit higher than we planned but we have added some additional extras. Work is due to start in April. However we are also spending an unexpected £10k on the garden, starting in March, which we hadn't really budgeted for, long story but it is very uneven and needs completely re-landscaping to make it safe for kids to play in. Our DD has some mobility issues and we would like to make the garden accessible to her, hence the high spend and not wanting to defer the work (only mentioning this in case some people suggest putting off the garden until next year!). We have also calculated that we need to spend around £5k on other internal furnishings/items once the building work is done that isn't included such as re-carpeting the stairs, some furniture (although will try to find some second hand, some pieces need to be specific sizes for the room shapes etc), new tumble dryer etc.

I also want to have a bit of a cash buffer as I feel very uncomfortable having no cash readily accessible at all especially after having nearly 80k sat in the bank for a while now. I'd like to have maybe £5k on hand in case of emergencies.

So this means that in total we would need £70k (building) + £10k (garden) + £5k (furnishings) + £5k (buffer) = £90k. But we only have £79k!

We looked at a home improvement loan but these are still at least 3% interest and so over the 5 years we would pay a fair bit extra back. We have explored the option of buying the kitchen on finance but again these have quite a high interest rate .

So instead I have just taken out a 0% purchase credit card which has 0% on all purchases for 26 months. My plan is to use this for everything that we possibly can, I have even cancelled direct debits for things like council tax which can be paid by credit card, and then the cash we are paid in our salaries each month can be used for the work on the house rather than on day to day spending. I'm going to get my husband to do the same. I have been given a £6k credit limit immediately so I'm hoping he will have similar, which would give us £12k total.

I'm worried we are cutting it a bit close, because we can obviously only save the extra cash month by month as our salaries come in. To make matters worse I am going off on maternity leave again at the end of April although I'm lucky to have the first 4 months at full pay. I'm going back to work full time in Jan next year and the plan would be to then start paying the credit cards back each month so they are paid off in full before the 26 month 0% period is over. If we didn't quite manage this for whatever reason we would then try to get a 0% balance transfer card for the remainder.

We get approx £5400 a month in salaries (total) and of this we need approx £1900 for mortgage, child care and bills that have to be paid by direct debit. So this is what we will have extra in cash by the end of each month, cumulatively:

End Feb £3500 (just got paid)
End March £7k
End April £10,500
End May £14,000
End June (when builders are due to finish) £17,500

That would then leave July and August still at full pay on my mat leave, which I need to use to top up our income so we can still pay all our outgoings from Sept-Dec.

So this would bring our total pot up to £79k + £14,500 = £93,500, exceeding the £90k required and leaving a cash buffer of £8,500.

Does this make sense?! Have I overcomplicated things or is this a sensible approach? Grateful for any advice please!

From experience of having an extension/ garage conversion done a couple of years ago I would just be mindful that things can go over budget, you may already have factored that in.

Have you budgeted for the minimum credit card repayments each month (i.e. before you start paying it down more in Jan next year)? I know some card companies are really putting this up, so might start to have an impact once the balance builds up more.

@Babyroobs we haven’t really budgeted a contingency although we aren’t actually extending which seems to be where extra costs often add up eg pipes need moving. However we would have the cash buffer and we also have a bit of breathing space in the budget eg our builder quoted £18k for supply and fit of the kitchen and utility but that’s only coming in at £14k now due to us choosing cheaper units. So some things might go over a bit but other things will come under the estimate, hopefully it will even out...

@AntigoneLost I had budgeted a rough figure for minimum repayments but I didn’t look at what this would be when the cards are maxed out, good point thank you! It could be quite a lot couldn’t it.

That seems like a sensible approach. You have a good surplus, so if you can keep saving for the next few months, and are paying for the work in stages, you might always have the money you need available.

Maybe try to be extra frugal with other costs this year? Cheaper or no holiday, minimal eating out and takeaways etc? All the uncertainty with Covid and extra costs of UK holidays might make that a no brainer anyway.

You could always get a smaller, shorter term loan later on, if there are unforeseen costs and it looks like you're getting close to the wire.

Another consideration might be could you get the kitchen on interest free credit, although I see that your builder is supplying it, so I guess it might be a Howdens one, so might not be an option?

We sort of did the same. We dithered over the 'extend or move' conundrum for about 8 years and that, combined with a very low interest lifetime tracker mortgage meant that we saved up 70-80% of the cost of either option. In the end, we decided to extend and topped the money required up by getting the kitchen on interest free credit from Ikea, which we were going to do anyway, and I took a £10k 3 year loan out. This did have about £600 in interest attached, but this was about 5 years ago, and I could get 3-5% interest in savings accounts, so with careful use of those, it didn't actually cost anything.

Will the work on the house impact the garden? Will the builders be putting up scaffolding? Using cement mixers? Storing equipment and materials? If so then don’t waste £10k landscaping the garden in March - wait till work on house is complete

Oh God, yes, our extension destroyed our garden and driveway, but it was shit anyway and we've since had a new driveway laid.

ALso, you probably don't (and if they're anyway sensible, the builders won't allow it anyway) DC playing in the garden when the extension is being built - drainage ditches, risk of materials falling off scaffolding, moving machinery etc.

You'll probably want to get away from the noise as much as possible so might be better to delay the garden until afterwards and take DC to park instead. This might then solve your cashflow worries too.

I would say that putting everything on time credit cards is quite a risky approach and is not something I would do. It is easy for a change in circumstances to leave you with this debt hanging there and you struggling to repay it.
I agree about the work potentially ruining your garden. My neighbour is having a rear extension and their whole garden is currently a mud pit. I would look at other ways to enjoy the outdoors for this year and get the work done then have it landscaped afterwards. Then there is no debt issue and no worry of the garden getting spoilt. I know you said this has to be done, but what were you thinking originally when you originally bought the house and didn't think it needed to be done as urgently?
The new furniture and buffer could also wait so if you really needed the garden doing you could save these bits till you have re-saved up. A buffer is sensible.but i would not get into huge credit debt for everyday expenses just to have one!

I'm not sure I understand the logic of putting your DDs on a credit card and using your monthly income for building work? Surely you could use the credit cards for the building work/furniture etc and keep your DDs from your current account, unless you are planning. I wouldn't want to be messing with DDs in case something goes wrong, payments are missed etc and you end up in unexpected arrears and charges for missed payments.

Is all the £70k building work essential before you move into the property? I would keep £5k back in cash as your emergency funds and then only do the absolute essential work first and cashflow it with what you have. In the meantime, live on beans and rice and save up as much as you can to cashflow the remaining work when you have the funds available. You must be pretty good savers to have £79k already saved up so I think you could build your pot up relatively quickly after you go back to work from maternity leave.

m not sure I understand the logic of putting your DDs on a credit card and using your monthly income for building work? Surely you could use the credit cards for the building work/furniture etc and keep your DDs from your current account, unless you are planning

I took this to mean mainly things like groceries, petrol, clothes etc although the OP has said she can pay her council tax this way too. Insurance is another good possibility - we pay all our insurance premiums, car tax etc by credit card (paid off in full every month and earns cashback) It would work for furniture, but builders don't generally accept credit cards, rather bank transfer, so it would be hard to pay for building work directly.

It's a variation on 'slow stoozing' where, in the times that you could earn interest on savings, you'd get an interest free spending card, put all your normal spending on it, pay the minimum and put the rest of the cost in savings until the end of the interest free period, when you'd pay the balance off, pocket the interest, find another card and carry on. Sadly not really worth doing any more, although I do have a large part of my premium bonds paid for this way.

Something to consider as a contingency plan if you don’t manage to get the credit card fully paid off within the 26 months is that towards the end of the time if you have a smallish amount left (around 25% for a good credit score) you can do a balance transfer to a new 0% credit card. You would probably have to pay a one off fee of around 3% but might give you some breathing room if things get a bit tighter during your maternity.

Sorry, ignore me has just saw you mentioned that as a possibility - ignore me!

@BarbaraofSeville

m not sure I understand the logic of putting your DDs on a credit card and using your monthly income for building work? Surely you could use the credit cards for the building work/furniture etc and keep your DDs from your current account, unless you are planning

I took this to mean mainly things like groceries, petrol, clothes etc although the OP has said she can pay her council tax this way too. Insurance is another good possibility - we pay all our insurance premiums, car tax etc by credit card (paid off in full every month and earns cashback) It would work for furniture, but builders don't generally accept credit cards, rather bank transfer, so it would be hard to pay for building work directly.

It's a variation on 'slow stoozing' where, in the times that you could earn interest on savings, you'd get an interest free spending card, put all your normal spending on it, pay the minimum and put the rest of the cost in savings until the end of the interest free period, when you'd pay the balance off, pocket the interest, find another card and carry on. Sadly not really worth doing any more, although I do have a large part of my premium bonds paid for this way.

Ahh that makes more sense, thanks for explaining! 😊

Thanks for the replies, a few answers:

• should have explained about the garden! It’s in two sections, as it’s quite a long thing garden. The first 5m or so is a very ugly old patio with crazy paving and a death-trap pond , followed by an 80s rockery up a slope and then the main garden beyond that. We want to remove the rockery which is really unsafe and build a retaining sleeper wall with fence so that the garden is on two clear levels. This is the work that will start in March and the builders won’t need to go near that area. Once it’s finished, because of the fence and gate, DD will be able to play in that area safely and without getting in the way of the builders. Then Apr-June the building work is being done and once it’s all finished the landscapers are coming back to replace the patio. Builders are going to be digging up the patio to move drainage etc hence why we have planned this way round! We did consider deferring the garden but it will be nice to have somewhere to escape to when on Mat leave with toddler as well without having to always go out out.

• @BarbaraofSeville is correct and our builders won’t accept payment by credit card, only bank transfer, so we have to try and pay as much on the CC as possible to free up the cash. But good point about being careful with direct debits - I will set up alarms on my phone to remind me to pay council tax etc. I haven’t cancelled everything, just the substantial payments.

• general belt-tightening is definitely needed. I have gone a bit over the top buying bits for the baby and decorating the nursery etc and I need to reign it in. I have actually returned a few bits because I felt guilty...! For the internal furnishings there are some things that I really don’t want to put off - such as replacing the carpet on stairs and landing as that will be the only thing left to do in the house and it is 40+ years old and smells like the dogs that used to live here but furniture we will definitely wait and see how things are before buying anything major. And I will trawl marketplace/eBay etc in an effort to get bits second hand.

• a PP asked about moving in... we already live here! Moved in September. We could wait longer but being on Mat leave this year means that we wouldn’t save much extra anyway, and we also waited a long time in our previous house and never ended up doing half the things we wanted so just put up with a crappy kitchen and bathroom for several years. We swore we wouldn’t do the same in this house, we usually save save save and never actually end up doing the thing we are saving for and so never get to enjoy it!