If you read Part 1 of this blog series, you will know that my wife and I recently remortgaged to fund an extensive home improvement project on our 1960s bungalow.
Now being a mortgage broker one would hope the finances would be under control when it came to financing the building work. I would say that it is under control but I have done some things that I would not normally do, and not recommend either!
As I mentioned in my earlier blog, I had made a bit of a boo boo with the further advance I needed, short term we were fine but I wanted to make sure we had the funds to cover the builders quote in reserve, therefore anything else we wanted had to be funded by other methods. Other things being a log burner (we are in Surrey after all!), shiny new kitchen with shiny new appliances, all the bathroom fixtures and fittings, new bedroom furniture, new sofas, the list goes on, you get the picture.
Credit Scores And Finance
I decided that 0% credit cards could fund the extra stuff in the short term, just on the off chance the further advance didn’t come through later on. I was confident I wouldn’t go silly and run up a lot of debt. Everything purchased was tracked on our “big build” spreadsheet.
I wouldn’t recommend to a client to go out and get more credit cards as it can affect your credit rating so I’ll explain why I think it was OK for me to do it in this particular situation.
First of all I was confident I would get my further advance in the new year once the kitchen was installed so that would clear off any residual debt as I was tracking all the spending, and what was due, on my spreadsheet.
Secondly I had a decent amount of money in my business I could draw out to cover it all, however this would be subject to 32.5% tax on dividends. With my company year end being 31st March and in touching distance I didn’t want to increase my tax burden; I might have to take the money out later but that essentially defers the tax into the next tax year, not ideal as the rates will probably have risen but it will help my cashflow now.
Thirdly I know I don’t need to remortgage until my fixed rate is up in mid 2019, by which time I’ll be back to using just one credit card and clearing it each month as before. So any short term effect on my credit rating would have recovered by then.
So I and my wife have put approximately £12,000 on credit cards that we will clear in the spring.
The time came to re-apply for the further advance and as I hoped the application was fine. Funnily enough this time they decided they didn’t want to do a valuation and would use the valuation they had on file so no worries about having a kitchen or not this time around.
Advice in this area would be to make sure you have covered all the bases, research how much the fixtures and fittings and nice bells and whistles are going to be. Record everything, you can formulate a complicated spreadsheet as we did or just write it down, either way make sure you are sticking to your budget. We haven’t got too carried away but, for example, we did say we weren’t going to buy any furniture until we had finished and we have. In fact we’ve spent a good £5,000 on furniture, which we can’t sit or lie on for another few months!
If you’ve read my previous blog post you will already know some of the ‘challenges’ we have come up against during the build. In summary, I hope the following tips will help you with any remortgaging / home improvement project you may embark on:
- You can only borrow against the current value of your home. Property price increases and minor improvements can increase the value sufficiently. Be realistic and have a clear idea of what your home is actually worth – not what you want it to be.
- Make your case to the mortgage lender surveyor. Some surveyors will have a good idea of what your home is worth based on the type of the property and area you live. Others may not. Do your research so you can pitch a value at the surveyor, backed up with hard evidence of comparable properties and the current market.
- Get your finances in place before work begins – if you need a bit more cash further down the line you may struggle to remortgage if the house is a building site.
- Make sure you know how much you need. Generally most people underestimate the cost of a building project, so get quotes in early so you crunch the numbers and work out if you can raise the funds before you commit in anyway.
- Invest the funds raised from remortgaging in an instant access account such as a savings account or premium bonds – it might as well be working for you while you’ve got it.
- Agree a payment schedule with your building contractor based on progress, not dates. That way you won’t be paying out for work that hasn’t actually been done.
- Consider whether there may be other costs associated with your build. For example, will you need to rent somewhere why work is carried out? If you have no cooking facilities for a few weeks, takeaways and eating out will increase your monthly household spend.
- Budget for all the fixtures and fittings. Do you really want to recycle your old appliances in your shiny new kitchen? Or sit around an empty fireplace because a log burner wasn’t budgeted for? If you’re extending your home to create more space, you may find you need more furniture to fill the space; make sure you’ve thought through and budgeted for these additional nice to haves.
If you’re planning a home improvement project and need to raise finance, give me a call. I’m happy to talk to you about my experience, and also explore your remortgaging options.