How best to finance home renovations?

[renoplanning]

I'd appreciate some advice about the best way I should be looking to finance potential house renovations.

I'm mortgage free- and I'm estimating the cost could be around £100k (possibly £150k as I got my estimates a few years ago).

I have £60k in savings.

Is there a solution I'm not aware of where I don't need to risk my house in order to get the money I need?

I'm delighted to be mortgage free. And having recently been made redundant out of the blue (I have a new job now but the market is really tough right now) I appreciated how wonderful it is not to have any worry over losing my home.

The renovations are to convert the garage and create kitchen/diner and utility, and bedroom, to modernise existing bathroom and add new small bathroom.

We're existing in a really hard way right now., crammed into tiny space.

We both work full time, living mortgage free and with savings, so it feels unnecessary to struggle so much.

I just wondered what kind of finance I should be looking for- and would it be possible not to use the house as security?

You're going to really struggle to find funds of £90k without taking out a mortgage.
Do you really need to spend £150k to make things better??
A recent redundancy and a volatile job market would make me very cautious especially as you're currently mortgage free.
In your shoes I'd put £10k away and spend £50k doing as much as possible to improve the space

Do you have a great credit score? What wages are you bringing in? If you're recently employed in a new job after being made redundant, that might wave a red flag at lenders.

It might be worth speaking to a broker or lender about this. £150k is a huge amount of unsecured debt, a lender is unlikely to offer that to someone bringing in 40k who is in unstable employment for example. Because it's unsecured, if you were to default there would be limited ways for the lender to recoup the money, so they'd want to be sure of that not happening (or as sure as they can be!).

How long would it take for you to save up the amount you need?

Could you use part of the 60k saved, do some of the work, then save up and do the next stage and so on until it's done and there's no need for finance?

Is there any scope to relocate to somewhere that the money from your current house sale could finance purchasing a house that meets your needs better?

Ah thanks for the sense check. I've felt far too cautious to do anything about the renovations, but everyone is expecting me to, and seem to have done sweeping renovations themselves.

I could get some updated quotes and talk about the bare minimum we could get away with.

We've only been in the house 2 years, and when viewing other properties it really stood out when people had done incremental improvements- there was no real flow.

So I did have a vision for doing everything well once.

But my neighbour spent £20k just on an architect for a renovation- so I may just need a competent builder.

Do you know how to find these finance brokers? Is there a well known company?

My salary is £60k.

Is this a joint or solo application? I think £150k plus unsecured borrowing on a 60k salary is unlikely, just from plugging in the numbers. For anything over £50k you are likely to need security for the loan, unsecured loans tend to be much smaller especially with a income on the lower end (lower end in terms of what you're looking to borrow, not in general wage terms!).

Tbh "flow" of a renovation will happen if you have a succinct plan - if you know steps A through to F and do them one at a time it will still flow. If you have no plan and do random renovations ah hoc, it might look odd! You'll still be able to do it all well, but just in affordable stages as dictated by your income levels.

I'd approach your bank first, they know your ins and outs of income and may be able to advise you on the best route.

That's good advice thanks @TTPDTS

As others have stated I think you would need a mortgage for that amount and I think a mortgage would also be the cheapest form of borrowing for these large amounts.

If you take the mortgage over 20 years-30 years (depending on your age) you can keep your repayments low (in case of job loss) but you can usually overpay by 10% each year without penalty and once you are out of your offer rate you can usually make unlimited over payments so for example when you get to the end of your two or five year fix you can pay a chunk off whatever you can afford without penalty, before taking another fix.

Have you considered if you would be better to move house to something 100k plus more expensive and not have to do this big project? A 150k renovation project might not add 150k of value to your house - are you OK with that and want to do the renovations for you anyway?

I think your "mortgage free" status is a bit of a mirage if you feel your house is too small to meet your needs. You are only mortgage free because your house is too small for your needs, and if you are not happy with the space you have you will need a mortgage to extend or a mortgage to move.

Yes good point @Winter2020 I definitely don't think the renovations will add £150k to the house value, as from my recent experience house hunting, the price seems more determined by location- and there's no way our house alone would stand out as over £150k more than others on our street. Especially as our footprint would remain unchanged.

Hmm lots of food for thought- it's looking like I just do a low-grade update as do not want to move, nor have 30yr mortgage!

I feel I might need to talk to others in more detail about what they actually did, what it cost and how they financed it

Do you have to do it all?
Surely if you already have garage to convert, you could look at what it would cost to incorporate that into house and change downstairs layout, add new kitchen area and possibly add loo under stairs or another area. All without a large extension option. So within Current savings.

What options depends on current house layout

There is another more thorny issue which plays into this.

The house was originally bought for myself and my two children, then my partner moved in with his two children too. So there are now 6 of us in a 3 bed house.

He pays me rent and has signed a declaration of no interest in the house.

It's complicated discussing extending the house. He has a relatively low income, and sees it as my decision. I see it as us only needing to do the work because him and his children have moved in.

He can single handedly keep on top of everything and does all dishes, laundry and maintenance, but the moment he stops everything is complete chaos as I cannot manage it.

We need something done at least. If I used my savings and didn't borrow it wouldn't be unrealistic to ask him to contribute more rent to cover it would it? He currently pays £300pcm plus bills

Yes @Caspianberg I'm planning to only work with the footprint we currently have- so not really an extension as such.

I would be expecting him to pay a huge chunk tbh. If you’re only having to add space due to an extra 3 people. Then he needs to help come up with the money or ideas.

We took out a bank renovation loan btw. It’s separate to mortgage, but also was for over 20 years ( but you could opt to pay off quicker or get a shorter term)

I think if you could break the build down into stages it could be possible - our garage conversion with ensuite and dressing room is costing about £20k (no fitted dressing room, it'll be left a room)
We also knocked through our tiny kitchen into utility to create one big kitchen so like you we haven't increased the size as such but maximised our space - the kitchen with building works, electrics etc was probably about £20k again.

The kitchen itself we got through Wren (whom I do not recommend) but we made use of their interest free finance to £25k
Once the kitchen is paid off we'll likely use another interest free finance option for the dressing room to be fitted out. This is to pace our repayments but you could also buy on a credit card then look for an interest free balance transfer.

It's allowed us to do this without remortgaging as the 2 build aspects were paid for by savings, by thinking about where you buy from and staging you may get away with unsecured loans to do this as well

Stick to budgets and spread the risk. Put £30k of your £60k towards the extension and remortgage for £100k, That way you still have a contingency for remaining £30k. Also if the works cost £100k, you can use the £30k you didn't use and repay part of the mortgage and bring it back down to £70k and you still have £30k safety. Glad that makes sense x

He's needs to pay more than 300pcm for 2 kids and himself. Taking the biscuit a bit, so you wanna spend all this money and take on extreme debt loan and he can just walk out, then how will you pay it alone..If you are a firm couple, sell up, combine your resources and buy a house 50/50.

I think charging your partner more rent might exacerbate any income difference between you.

You have said he is on a low income. Does that mean you are on a higher income?

He already pays you £300 for rent (and you said plus bills). You are not paying a mortgage so this £300 is just making your (already higher?) income higher again than your partner. Charging him £500, for example, if you are not taking a loan or mortgage is increasing the difference in your incomes and might make it hard for him to manage. At the same time you say he has no right to any equity in your property.

I don't think it's fair for him to pay for renovations in full because he has no claim on your home and you are his partner not his landlord.

Thanks @Winter2020 and @ConstanceM for your different perspectives- this is indeed the issue we have - and have spent a lot of time discussing.

I don't really know how to resolve it, other than keep talking about it.

Yes he pays £600 all in. And yes I earn more than double what he earns- so a massive discrepancy in our set up.

However I would only be doing the work to accommodate him and his children- so I felt paying an additional £100 per month might be reasonable?

Thanks for the example of how to do it bit by bit- that sounds much more manageable. Out of interest- what was the interest on the finance from Wren? Just to help me put ballpark costs together

I'm not going to comment on what your partner is paying as feel that's a separate issue entirely.
Could you possibly post the current floor plan of the property to see if we could give any ideas on things you might have not considered?
I'm fairly risk adverse and definitely wouldn't pay out more on improvements than I'd add to value but that's me
Your comment about people expecting you to do work stood out for me. Who cares? Don't feel under pressure to borrow money to do work because your neighbours have. We've been in our current house for over 6 years and haven't done much at all. Others would have ripped it apart and refurbished from top to bottom twice over. I feel too nervous to take on any more debt. I just feel the world is a crazy place right now and has been for some years so prefer the security of knowing we could survive if it all went tits up

What is the market like in your area, @renoplanning?

Ours is stagnant but since 2020 building work is much more expensive but due to building costs if our market was better I'd probably consider moving to a cheaper area or ex council property, we're saving for some reno work but if the option to sell for a decent price and there was good sized homes in our budget, I'd move.
I'm flat out refusing to loan massive amounts of money or add more on our mortgage in the current climate.

Can you make changes to the garage to give you more living space without making it a massive job? Just get windows/electric in there and get some sofas?

The fact you are mortgage free and he pays £600pcm seems a lot to me. That would easily cover a mortgage for you to do the works on the house. Seems like he basically covers all the household bills and theoretically you don’t pay anything or very little towards them. Yes he is living in your house but I wouldn’t be asking him for more money when it seems very imbalanced anyway. I would be looking for a house which suits your needs if it wouldn’t add £150k to your house value

@renoplanning the interest in their 'best' kitchen is 0% over 5 years
Honestly though we have had no end of issues from designer through to fitting - the only thing that went well was when a cupboard broke after 18 months, only had a 2 month wait for them to fix that....!!
There are other companies that do 0% so I'd say do your research and if you do use them triple check every measurement, every design, ensure absolutely everything is documented and ignore any comments along the lines of 'the software is new but I'll add a note saying it needs to be included' because it never is and even if they adapt the design, you'll need to recheck every detail again

Here's the floor plan @Jmaho, we have already cut the living room in half to make an extra bedroom as marked up in red.

It is quite a lot of space including the garage- so would be interested to hear people's thoughts.

Ikea also do 0% loan I think.

From your layout I would:

1. wall up where red line is. Wall down between kitchen and there, so you have nice kitchen diner at back. Block kitchen back door off so main door if now from dining area. It will allow for a bigger L shaped kitchen there and keeping kitchen in that area will reduce costs.

2. under the stairs loo. The small kitchen cupboard next to it incorporate so it’s big enough.

3. make garage into large bedroom for 2 kids.

I wouldnt do anything else for now. At a later date in future you can knock through the bathroom and toilet upstairs and refit out, but I would leave that for in a few years time.

The open plan kitchen diner will really free up space to live in. Get new kitchen added but not super expensive one.

Keep reception room the same.

Make the garage bedroom that of whichever children are youngest. I’m assuming no babies or toddlers, but it’s then big enough for those needed help with homework or play date monitoring that it’s a bedroom/ playroom and add desks for homework

Yellow - new kitchen diner
Orange - under stairs toilet and sink
Green - new bedroom

That's really helpful thanks @Caspianberg - what would you estimate what that would cost?

I'll get quotes, but just to give me a feel.

That's definitely the obvious place for kitchen diner, which I think will be really nice.

Regarding the garage, I'm wondering about making it slimmer so we still have access to the back garden from outside.

Or possibly building on top. Not a big fan of that but it is what a lot of neighbours have done.

I think @Caspianberg 's plan looks good.

I had a garage knocked through and bought into the house in a previous house I lived in. It's a lot of work! But I think you need to get some quotes so that you know the cost of this. Maybe you would only need to get a small loan on top of your £60k to cover this.

As others said, Ikea do loans for kitchens.

I think you should really consider a mortgage - the interest rates will be much better than unsecured loans. I can understand why you'd want to be mortgage free, but having a mortgage would be better than having unsecured loans if you lost your job.

How old are you?

And is there an attic that can be converted? An attic conversion is usually a cost effective way to add value to a house.

And yes, you need you partner to pay more money to you.