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A guide to Home Improvement Loans

Five best and worst home improvements for adding value

If you are improving your home, you want to know whether the work you do will help you add value to your home or whether you will lose money

Here are a few tips about what will add value and what will not.

The five best improvements

• Redecorating: on a pound-per-pound basis, this is probably the cheapest item of home improvement you can pay for. Yet the right paint job can add up to 10% to the final value of your home
• An extra bathroom can add 5% to the value of your home, as long as it is not built at the expense of a bedroom. If the property is fairly large and has upwards of five bedrooms with one bathroom, you stand to gain. If it means moving from three bedrooms to two, don’t do it
• Garages are sought-after features. Build correctly, they can add up to 5% to the value of a home. At the very least, they usually recoup an investment
• Lofts, especially those which add an extra room and maybe even a separate bath or shower room, can add upwards of 10% to the value of a home, as long as it they are in keeping with the rest of the home and built by specialists within all appropriate planning rules. The aim is to make them a virtually indistinguishable part of the rest of the property
• Central heating system replacement: they may be expensive and will not necessarily add to the value of your home. But they are vital to holding up the sale price of your property. And in the meantime, they will recoup their cost through more efficient heating

 

The five worst improvements

• Plastic double-glazing. On all but the most modern homes, this will not only cost thousands – but almost certainly knock thousands off the value of your home, especially if all other properties in the area don’t have it. Secondary glazing on the inside of existing windows may be preferable for a period home with original features
• Creating off-road parking for a car directly outside your home. Yes, it’s probably safer, but you have destroyed a chunk of your front garden and made the front of your house much less attractive. This can take up to £5,000 off the best asking price. If you need to do it, try to do it at the side of the property
• A new kitchen is a popular home improvement but homeowners are unlikely to get back more than their original investment. In some cases, you will actually lose money. But it may help underpin the right asking price
• Adding a third bathroom to a two-bath house is a no-no, unless you don’t care about ever recouping your investment. In effect, you have just waved goodbye to between £5,000 and £10,000
• New carpets. Surprisingly, new carpets add nothing to the value of a home. In other words, you spend £3,000 carpeting your home from top to bottom and it is worth no more at the end of the day than it was before. That said, if the previous carpet was in a terrible state, a new one would allow you to justify the asking price. In which case, go for the cheapest –neutral – carpet you can find.
  
  

Women will spend over £29 billion on home improvements (Source: Sainsburys Bank)

Doing up your home is now mainly in the hands of women, according to research

Women are now leading the way when it comes to home renovation. Around 6.28 million women have home improvements work worth an estimated £29.29 billion planned for between now and the end of July, according to new research from Sainsburys Bank. This compares to the figure of just over five million men who intend to spend £27.53 billion on improving their homes during the same period. And the averages spend per DIY project taking into account both men and women amount to £5,041.

Yet despite the popularity of home improvements it has still seen a dip compared to previous times. In total, people intend to spend £57 billion on improving their homes over the next six months. This is a great deal down from the £80 billion they planned to spend during the period of June 2004 and December 2004.

Of the £57 billion that will be spent on home improvements, £4.04 billion of this will be financed through personal loans. And in total, £13.9 billion of planned home improvement cash over the next six months will be financed through credit and borrowing.

Home work

Of the people planning to carry out home improvements over the next six months, 39% intend to do painting and decorating. This is followed by 22% who will be fitting new kitchens and 21% who intend to replace their bathrooms. But there are some more adventurous home improvers out there with 792,000 dead set on having extensions built and 310,000 considering a loft conversion.

When asked why they were planning the hard graft of doing up their home, 54% said the main reason was to make their homes more comfortable to live in. Yet 24% insist their properties are in need of the necessary repairs and 10% claim they need more space. And 350,000 people will make the improvements to increase the value of their homes before putting the on the market to sell.

• Try our loan calculators and see how much it may costs you.

Home Improvements

When to improve and when to maintain

There are some aspects of owning a home that require necessary maintenance to ensure that it is fit and habitable to live in. And there are other aspects of looking after a home that will simply make the place look and feel more comfortable. Find out the difference here.

Doing up a home is fun, but you don't have to do everything.

Some parts of home maintenance are "necessary" and some are just "nice to do." Here are a few tips on the priorities you should be focusing on – and what can be left until you have cash to spare. They are classified into three areas:

• Vital
• Probably necessary
• Not immediately necessary

Vital

In practice, this means the following:

• The roof: it must be watertight. You should be carrying out annual checks on the roof
• Windows: they should be free of rot and peeling paint. It is quite surprising how quickly they can deteriorate. They need to be re-painted at least every three years
• Pointing if brickwork is not properly pointed, water can enter and cause problems to your inside walls. In cold weather, ice can form, which cracks brickwork further and eventually requires extensive – and expensive - remedial action. Pointing is something which, if done properly, will probably last your time in the property
• Damp proofing unless you sort out any causes of damp on the outside, you will end up with damaged plasterwork inside. If you have a timber floor, your joists may start to rot and will need to be replaced. You will need to have at least a 25-year guarantee in place
• Electric’s: poor wiring can kill. Signs that a house needs rewiring include cables that are coated in black rubber or fabric rather than the modern PVC-coated cables.
  
  Also check the fuse box. If it has a wooden box, cast iron switches or green and yellow wires coming from it then it may be out of date and may need replacing, subject to further inspection and testing.
  
  Other signs of potential problems include twisted wires from ceiling roses to light fittings, plugs and sockets that feel hot to the touch or have brown scorch marks on them, fuses that blow for no obvious reason or tripping of circuit breakers, and lights that continually flicker.
  
  According to IEE wiring regulations BS 7671, domestic properties should be checked every 10 years, as old or faulty wiring is a prime cause of electrical fires
  
  

• Plumbing (heating and hot water): basically, you want to have a plentiful supply on tap whenever you are likely to need it. So will future buyers of your home, by the way.
• Most boilers will last for between 10 and 15 years, some for longer – up to 20. Much more than that and you not only risk the possibility of fume leaks, you are also likely to be paying upwards of a third more on your heating bills each year. A new boiler will pay for itself over 5-7 years, depending on the type

Probably necessary

• Plastering and re-decorating: we are talking paintwork and cheap paper, not William Pugin reproductions at £80 a metre. A tidy-looking house internally will make you feel better about living in it and it need not cost the earth. If you are re-decorating, you should bank on carrying completing a room every 6-7 years at the least, perhaps doing them in rotation




Not immediately necessary

• New bathroom: this is a potentially expensive refurbishment. You may need to carry it out if you have a coloured bathroom suite, if the current tiles are in poor condition, or if the flooring is unhygienic in any way. But it is not essential in the short term. You can afford to wait. A bathroom suite should last your time in the house
• New carpets/flooring: if the previous owners have left carpets in a terrible state, or in a rather old-fashioned “swirly” style, you may want to consider replacing them quickly. But paying for the whole house to be re-carpeted is probably not worth it until you have decorated. You should re-carpet every 15 years
• New kitchen: if the kitchen is an extremely poor state, this is an area worth looking at. But in most cases, you can probably survive for a long time with a kitchen that is functional, if not quite the way you want it to look, or even if it fails to meet your immediate need. Once fitted, the kitchen will probably last for at least 15 years. So going for particularly “fashionable” styles now will prove costly
New furniture: you will be buying most furniture once. If you already have it, stick with what you have until you know what the rest of the décor is. Otherwise, the most important things you need are a table and chairs, a bed (or beds) and wardrobes, perhaps a settee.

You should be aiming to replace a bed, certainly its mattress, every 15 years. A good settee ought to have a life of at least 10-15 years. Tables and chairs can be replaced as often as you like – as long as they were cheap in the first place.



Improve or move: five rules to help you decide

Working out whether to do up your property - or move instead - is one of the challenges of home ownership. Read on to find out how to come to this vital decision.



Five points to consider:

• Is the house so crowded that you can only stay at enormous trouble and expense, involving carving out a new bedroom from an unlikely location? If so, MOVE.
• If you do work to your house, will it genuinely add value to it – equal to the amount you are likely to have to spend? If so, STAY.
• Will any improvements to your house pitch it completely outside the price range for the rest of the neighbourhood? The basic rule is that you should never improve a house to the point where its desired sales price would be more than 20% higher than the most expensive of the other houses in the immediate neighbourhood. For example, a giant covered swimming pool and a three-bedroom extension in an area where there are no other pools and all other properties are two-bedroomed terraces is unlikely to help your house sell for more money. If so, MOVE.
• If the cost of a property elsewhere, with the same facilities you are looking to install in your house, is the same or less than you would have to pay to improve your present home, you should MOVE. Strictly in investment terms, major improvements rarely make as much sense as selling your present home and buying one that’s carefully selected to provide you with what you want.
• If the improvements are ones that will, in the longer-term, help sell your place – either because they are necessary or because they improve the look of the property, you should STAY.
  
  

How to get your home improvement contracts right

Understanding contracts is key to making your home improvement schedule hassle free and cost effective. Find out how to manage them by reading the helpful tips below

Finding the right builder or trades person to carry out your home improvements can be like navigating a maze. So it is natural that having identified the person you think is right for the job, you heave a huge sigh of relief and agree to whatever method of payment he or she suggests for the job

Big mistake: the method of payment, indeed the very way in which you are quoted for the job, are also evidence of whether the builder is right for you or not. Here is what you need to think about:

Ask for a quote in writing

This is essential, as a written quote specifies exactly the job to be done. Also, note the difference between a “quote” and an estimate. A quote is a fixed price that the builder can't change once you have accepted it, even if they have to carry out more work than expected – subject to you not changing your mind half-way through and asking for the work to be carried out differently. An estimate, on the other hand, amounts to an educated guess.

It is not binding, and it means that you could end up paying more.

What this means in practice, is that you need to be completely clear about what work it is you expect to be carried out. The best way is to specify everything on paper, down to the paint you want used, the number of coats you expect to be applied and how you want the house to be left after the job is done.

Be aware, however, that quotes cost the builder time and money to prepare. He or she is less likely to want to submit one if you are asking upwards of five builders to quote.

It makes more sense to tell the builder he or she is one of two or three, four at the very most for a big project, that you want to do the job. Knowing they stand a reasonable chance of getting the work makes it more likely you will get a quote.

All quotes should be within 15% to 20% of each other. Beware of a quote that seems to be impossibly cheap, as well as one from a builder who says he can start immediately: what, you aren’t busy? Just exactly how sought-after are you?

Also, while it may be tempting to use a quote to then force a “Dutch auction”, in which the chosen builder is asked to reduce his price to match lower quotes. Your builder will resent you for it and then try to cut corners while on the job.



Agree a contract

A contract can prevent misunderstandings and establish the cost and duration of a project. Contracts can also provide you with peace of mind and ammunition if the builder doesn't complete the job according to your specifications. Therefore, it should go into detail in terms of:


• The work that needs to be done, including labour and materials
• The cost of each piece of work
• How payment will be made (in stages or at the end of the work)
• Whether there is a sum held back for "snags", putting right any minor problems that may arise after the work is completed.
  
  

Work guarantees

The best builders will also offer to guarantee their work for a period of time.

Before you choose your contractor - ask them to explain their guarantee and request that you have a written copy of it before the work starts.

Not all trades professionals will have a standard guarantee document, and so they may have to prepare this for you.

You should also insist that the guarantee is insurance backed, because no business can say with certainty that they will be around in years to come to honour your guarantee. By insisting on an insurance-backed guarantee you benefit from an insurance company paying for any work if the builder ceases to trade.

While on the subject of insurance, make sure the builder has liability cover: if anyone has an accident on your site, you want to make sure that everything is covered.

NHBC guarantees

If the contract is big enough – for example, building a new home – you will probably need a guarantee from the National Home Builders Council, or NHBC. The NHBC 10-year guarantee covers about 85% of new homes in the UK.

The builder usually obtains this cover. You should always double-check with the NHBC that they have what they say.


• Find out more at the NHBC web site www.nhbc.co.uk
  
  

VAT

This is the classic one: the builder tells you that the work will be cheaper – "You don’t have to pay VAT" – if it is paid for cash in hand. This might be OK for a tiny job, a small area to be plastered, for example, or for a painting a couple of windows.

Apart from the fact that it is actually against the law, you also have no come-back if the job goes wrong. Means that there is no official record of the job and also the builder will be reluctant to offer a guarantee or enter into a contract.

Moreover, if the contractor is prepared to cut corners, will he cut corners throughout the job?



Deposits

Beware of requests for large deposit payments. There are far too many examples of homeowners paying large deposits and the contractor disappears, or goes out of business.

Always question the need to pay for a deposit up front - ask what it is for. All good trades people will have credit accounts with their suppliers, so to claim that the deposit is for materials is not only wrong, it also suggest the builder is operating on a "hand-to-mouth" basis.

If they say they need it to ensure the job goes ahead, you can state that you would rather sign a contract instead to show your commitment.

In certain circumstances it may be justified to pay a deposit, for example if a special item needs purchasing from a specified supplier. You should keep the amount as low as possible: 10% of the contract price is usually acceptable.



Useful links.

You can download a standard contract from the Federation of Master Builders website



Finding the money for home improvements

Anyone who has carried out a series of wholesale improvements to their house will know that the cost of doing so can often run into many thousands of pounds. There are a variety of ways you can manage the cost. Find out each method's pluses and minuses here.

If you already have got the money to hand to decorate your home then there is no problem. But most of us haven't got nearly enough. So, what options are there? Add the cost to your existing mortgage or take out a Secured loan against your home.

This involves borrowing extra on existing home loan, subject to your lender’s agreement. You then pay the capital and interest off as part of a larger mortgage.

Advantages

• You combine all improvement costs literally as well as actually under one roof
• The payment period runs for exactly the same time as your home loan
• Monthly payments are likely to be lower than with a standard loan or a credit card
• The interest rate on the mortgage will probably be less than what is available elsewhere.
  
  

Disadvantages

• While the interest rate is less, you may end up paying more interest, because the period of the mortgage is almost invariably longer than that of a traditional loan
• The amount of interest is likely to vary in line with base rates, so you do not know exactly how much you will pay off. If interest rates rise, so will the payments on your larger mortgage
• Unless you have a mortgage offset account, on which you have already paid back more than the agreed amount, you may have to pay extra fees, plus a valuation report
• The amount you borrow may be subject to whatever multiple of earnings your lender believes you can borrow on the new mortgage
• Your home may be at risk if you are unable to pay off the mortgage
Generally speaking, this type of loan is useful for those who have large-scale home improvements in mind, such as an extension or loft conversion, where the overall costs are likely to run to tens of thousands of pounds.

For smaller improvements, the overall costs – including fees and reports – can make it quite expensive.



Take out a loan

Here, you go to a bank or another financial institution and take out a loan. You agree to pay a set amount, for a fixed period of months until the loan is repaid.



Advantages

• You know exactly how much you are paying at the outset
• It provides welcome discipline to your monthly budgeting
• The loan is paid off sooner than through a mortgage
• Interest rates on many loans are currently at an all-time low and very competitive
• Your home is not at risk if you are unable to pay the loan.
  
  

Disadvantages

• Loans are inflexible: you cannot miss a payment, or reduce the amount you pay
• If you redeem the loan early, you may suffer significant redemption penalties
• Interest is still higher than a mortgage – and if you spread the repayment period over, say, 10 years, the amount you pay will be high
• Although your home is not at risk, non-payment can result in County or Sheriff’s Court Judgements against you and you may then find it difficult to credit
• Loans are better for smaller sums of money, where the repayment period is likely to be short. They offer the opportunity to budget, but at the expense of less flexibility.
  
  

Credit cards

Here you either use an existing card or apply for a new one and spend up to the agreed limit on your purchases.



Advantages

• They are flexible: you can pay back as little as 5%, in some cases 3% on your card debt each month. This means you can budget accordingly in terms of your other spending
• You can keep spending up to the limit, in effect giving yourself a revolving line of credit
• You only pay interest on the outstanding debt
• If you apply for a 0% interest card, you pay no interest on your purchase(s) for up to 6 months, sometimes longe
  
  

Disadvantages

• The interest payments on cards is very high
• The charging structure on all cards is highly complicated and, for some, can be very expensive
• Repaying only the minimum can mean it will take many years to repay the capital owed
• Cards are terrible to budget with unless you are very disciplined and pay back well in excess of your stated minimum
• If you have recurring monthly debt on your card, new purchases are unlikely to enjoy any interest-free credit period.
  

Credit cards are more useful for purchases, such as furniture or white goods, or even decorating items, than they are for work that is carried out to your house – although some contractors will accept card payments.



Overdrafts

You spend up to the limit previously agreed with your bank.



Advantages

• Some banks’ overdraft rates can be surprisingly low
• You only pay interest on the outstanding debt
• If your wages are paid into your account monthly, you may only be overdrawn for part of that month, and therefore only pay interest for a certain number of days
• Agreed overdrafts can act as a form of "revolving credit", offering the opportunity to go out and spend more, as long as you are under your agreed limit
• They are flexible: you can reduce the overdraft by as much as you wish each month, subject to paying interest on the outstanding amount
  
  

Disadvantages

• Some bank overdraft rates can be very high
• If you go over the agreed rate, even inadvertently and for a limited period, the penalties can be extremely high
• Unless you are disciplined, you could find it difficult to pay off the amount you owe the bank
• Overdrafts are typically used for emergencies: by using it to pay for a home improvement, you may find it difficult to access the money if something were to happen

An overdraft, like a credit card, can be useful for making a sudden purchase – at a sale, perhaps.

Unlike a credit card, it is easier to use when you are paying for building work, as you can use a cheque. But it is not ideal for this purpose, being more suited to smaller one-off purchases, thus allowing you to pay the bank back as quickly as possible.

 

0% finance deals

You are offered these when purchasing some items, usually furniture and carpets, or electrical goods.

You either have an interest-free period for a certain number of months, after which you must pay back the full amount or incur interest charges. Or the deal applies to a fixed repayment period. </



Advantages

• You pay no interest on the purchase
• If the deal involves full repayment several months later, you can still set aside money in the interim to do so
  
  

Disadvantages

• If you don’t pay the full amount by a certain date, you can end up with heavy interest rate bills
• Sometimes, the item itself is more expensive than might be available elsewhere
Deals like this are useful if you want the individual item on sale. But you have to be careful of not being caught out, particularly with “deferred” interest deals.



Store cards

Are similar to credit cards: these usually allow you a certain credit limit in one store chain, or several owned by one larger corporation.



Advantages

• Discounts are sometimes offered to first-time applicants for a store card. This can be useful if you are looking to make an expensive purchase
  
  

Disadvantages

• Grotesquely high interest rates charged on store cards make them uneconomical to use

In most cases, store cards are a no-no for canny home improvers. The exception is if you are offered a one-off discount on application - in which case you should cover the amount borrowed on the store card by another form of credit before the interest—free period ends.



Nine steps to finding the right loan

There are some basic rules that you should always apply when searching for the right loan

Deciding which loan to take can be confusing. Here are nine of the most important rules you should always apply when searching for a loan.

1. Shop around or simply ask for advice from an independent mortgage/loan adviser.

2. Take APRs (Annual Percentage Rates) with a pinch of salt: ask for what the monthly repayment costs will really be.

3. Always ask what the total interest payments over the length of the loan will be, as well as the monthly amount.

4. Check out the cost of accident sickness and unemployment cover. Remember: you may not even need it (your employer’s sickness scheme may protect you).

5. Go for flexibility over minor variations in price. This means finding out about repayment penalties and the “Rule of 78” and how it applies to you

6. Second charge or secured loans have to be considered in the same way as a mortgage has to be namely: - your home is at risk if you cannot pay off the loan.

7. Always check the small print: there may be issues in there that you are unaware of: for example, what happens if you miss a single payment or it arrives late to the lender’s bank?

8. Try not to take out long-term loans for periods of, say, 10 years. You simply don’t know what your financial situation will be over that length of time: a mortgage to pay for a roof over your head is one thing, but for a car?

The interest payments could be as much as the cost of the loan itself.

9. Don’t make serial applications. The more applications you make and are turned down for, the more your credit history will be tainted.

…………………
Please note that these articles do not constitute regulated financial advice, which recommends a course of action based upon the specifics of your personal circumstances. The articles are intended to provide general personal financial information. You should consult an Independent Financial/Mortgage Adviser (IFA) before making any important decisions about your finances.
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