With the average house price expected to soar to around £300,000 by 2011 it is no surprise 42 per cent of today’s homeowners are choosing to extend their property – either to cash in on the housing boom or as an alternative to moving. However these Brits are being warned to steer clear of a major mortgage mistake which could erode their earnings.
moneysupermarket.com figures reveal the difference between choosing the right and wrong home loan for renovations could cost homeowners as much as £17.89 billion.
The research reveals that people choosing to stay put and renovate rather than move house need to consider their mortgage needs carefully or face paying out an extra £2,130 in costs.
Generally, borrowers wanting to secure extra cash on their mortgage to fund work on their house will be offered a home improvement loan. But moneysupermarket.com’s figures illustrate how much better off they would be if they remortgaged to pay for the renovations instead. Indeed, interest on a home improvement loan from a borrower’s existing lender, would be charged at a typical SVR rate of 6.5 per cent – as much as 2.13 per cent over more competitive mortgage rates which are currently available.
Louise Cuming, head of mortgages at moneysupermarket.com, said: “Moving house is often a daunting step and in times like these people are likely to want the security of staying put. Before making any decisions it is important that homeowners weigh up all the costs involved before they start looking at properties, drawing up improvement plans or speaking to their existing lender. A careful assessment of their situation means they could save themselves a lot of money if the decision is to improve – perhaps even enough to pay for new furniture to go with the new renovations.
“In addition many lenders have really simplified the remortgage process so associated costs can be minimal, with products offering free valuation and legal fees for standard transactions. And remortgaging to a larger loan incorporating an allowance for home improvements could work out more cost effective even after mortgage exit fees. Not only will the remortgage save you money in the short term but the home improvements should increase the value of your property for when you do want to move.”
