How to save for your home improvement funds

Whether you’re welcoming a new member to your family, brightening up your living space, or adding a little value to your property, if you’re wondering how to save for home renovations, we have you covered. There are lots of ways that you can build up your home improvement funds, including growing your savings, borrowing, accessing grants and releasing equity.

Paying for renovations to your house with your own money is a great option, because you don’t have to pay interest. But this  isn’t always possible. If you don’t already have cash available to make changes to your home, we have tips on how to save money for house renovations. But, if you don’t have time to save, here you can  discover various ways you can borrow the funds.

Why make improvements to your home?

For many, the cost of living crisis, more competitive demand for properties and stamp duty rises have driven us to look at improving our homes, rather than heading back into the property market. Renovations can give you and your home a new lease of life. But that’s not the only reason to consider it.

Making renovations and adding to, or upgrading, your home can help you to increase its value. Loft conversions can increase the room count in your house, extensions can bring more space and light, and modernising your fixtures and fittings can make bathrooms and kitchens more desirable. All of these things can add £1,000s to the value of your home.

How to save for home improvements

Saving for home improvements isn’t the only way to reach your renovation goal, but it may be the most cost effective option because you don’t have to pay interest on the total amount. In this article, we’ll look at how to save money for home renovations, but also consider other options to fund your home makeover. 

You can use these same techniques to either save money towards, or repay, your renovation funds. You can also use them to check how realistic it is for you to afford any home improvements in the first place. Giving yourself attainable savings goals will keep you motivated towards success. Making sure you can afford monthly payments will also help you to avoid getting into overwhelming debts.

Using cash savings as funding for home renovations

Saving up cash to fund house renovations is a fantastic option if you already have the money in the bank, or if you have the time to grow your savings. One of the main reasons to consider this is because you don’t have to get into any debt, or pay any interest. In fact, renovations can be a great investment as well if you are able to increase the value of your home.

In order to work out whether your planned home renovations are affordable for you, it’s a great idea to create a budget. To do this, grab your bank statements and bills and work out your total income and expenses. You can discover different budgeting rules and which one is best for you here. We will use the 50/20/30 rule as an example. 

The 50/20/30 budget splits your total income into three percentage chunks: 50% for your essential expenses (like rent and bills), 20% for your financial goals (like saving towards home improvements), and 30% leftover for your nonessential outgoings (like luxuries and entertainment). If you’re not repaying other debts or saving elsewhere, 20% tends to be an affordable monthly target. 

Divide your total renovation sum — including how much you will need for the building work, materials, planning and contingency — by your monthly 20% contribution from your income. This gives you a realistic timeline for saving towards your goal. You can also use this formula to see how long it would take you to pay off a loan, although remember to add interest to your total.

For example, with a £30,000 salary, your post-tax monthly income will be around £2,000. That would give you savings of £400 per month. To save towards a £10,000 renovation project, it would take you just over two years to reach your target, and to  grow your savings to where you need them to be. So, what other options are there?

Check for home improvement grants

Certain types of renovations may actually be covered by funding from various companies and organisations. Things like energy-saving improvements, such as boiler upgrades, solar panels and insulation might be included. Older people, or those on lower incomes, may also benefit from repairs, maintenance and improvements from the Home Improvement Agency.

Remortgaging or increasing your mortgage for your  home improvement funds

If the money you owe on your mortgage is less than the value of your home, you can consider remortgaging. Remortgaging is where you take out a new, larger mortgage that includes the cost of your renovations. If your credit score is in a good place, you may be able to get a better deal on your interest rates with a new provider, but there could be early repayment fees.

While this option is good because your repayments just increase your monthly mortgage payments — and can even feel comparatively small — it’s important to work out what the actual interest cost will be. It can often be an expensive increase to the total cost of your renovations, especially if interest rates rise over the long repayment period (sometimes as long as 25 years).

Alternatively, you can ask your current mortgage provider whether you can increase your mortgage to cover the additional costs of your home improvements. This is a similar option but means that you can stay with your current provider if you are happy, or if you are receiving good interest rates.

Release equity from your home

When you are over the age of 55, it’s possible to release equity from your home with a tax-free, secured loan against your property. Your repayment options vary from paying interest to allowing the interest to accumulate, or ‘roll-up’. This means that the interest you owe is settled when you sell your house, or at the time of the last homeowner death.

By releasing equity in this way you can essentially realise the wealth you have tied up in your property before you sell it. However, it can be an expensive way of getting hold of the cash you need and it can impact the inheritance you leave, and your eligibility for some state benefits, so caution is advised. It might be a good idea to seek professional financial advice before choosing this option.

Apply for a secured loan

A secured homeowner loan is a type of borrowing that uses your home as security. That normally means that these sorts of loans have lower interest rates and longer-term repayment terms (possibly as long as your mortgage itself). To be accepted for a secured homeowner loan you will be subjected to affordability checks and your credit history will be looked at. 

Secured homeowner loans are also known as home equity loans or second-charge mortgages. It’s important to remember that secured loans like this can result in the repossession of your home if you are unable to make your repayments. So it's a good idea to carefully and properly consider your options and your affordability before you opt for this option.

Unsecured loans and credit cards

An alternative to secured loans is an unsecured loan. This borrowing will likely come with lower limits in terms of the amount,  and higher interest rates than secured loans, but you don’t have to use your property as collateral. Unsecured loans can be more suited to smaller renovation projects and the best deals will normally be reserved for those with the best credit histories.

On the plus side, unsecured loans secure your funds quite quickly and don’t put your home or other assets directly at risk if you default. However, they often come with high interest rates over shorter repayment terms and are less flexible than secured loans. 

If you don’t fancy a secured loan, a similar option is to use a credit card, ideally with a 0% interest period that you can realistically repay your borrowing within. This would be more suitable for smaller home improvement projects, as credit cards often have modest limits that may not stretch to full home renovations.

Using a credit card with an interest-free period can be great if you can pay it back within that time. But it’s important to understand what APR (Annual Percentage Rate) the card switches to when the interest-free period ends. The interest rate can shoot up at that stage so you can be caught out if you don’t keep an eye on it.

Credit cards can be excellent for getting cash fast and some offer interest-free periods, but you can be stung with exceptionally high interest rates if you don’t stay on top of your payments. If you want to get the best deals on credit cards you will likely need to have a great credit score. The lender will normally perform a hard credit check when you apply for a credit card, and that will appear on your credit history.

You can find out more about how credit cards affect your credit score here. Or discover more about how personal loans affect your credit score here.

Saving for home improvement: Conclusion

If you can make a savings plan to get the money for house renovations, that may be the safest and most cost-effective solution. But, unless you have the money already available, you may have to wait several years to accumulate what you need. In that case, you might want to borrow and take the hit on interest payments so that you can start your home makeover sooner.

As with all borrowing, however, there is a risk. Depending on what option you go for, not making your repayments could cost you anything from high interest rates and damaged credit ratings to having your home repossessed. So it’s important to be realistic about what you can afford and what needs to be done to your home.