Honest Advice for Homeowners Considering Whether to Move House or Stay and Improve
Written on 4 March 2024 by
Whether to move house or stay is an important decision with many financial and lifestyle factors to weigh up. While no blog will be able to fully make up your mind, here I’ve laid out some key considerations that can help you decide what best suits your needs and budget, as well as potential options you may not have known about or previously considered.
First Things First – Let’s Talk Money
Preparing thoroughly is essential, whatever you decide. Review your current mortgage deal - are better rates available? Check your ability to secure a new competitive mortgage if you move, factoring in Stamp Duty and legal fees. If you opt to stay but still crave an upgrade, consider how much equity you could release from your current home to fund improvements like an extension or loft conversion. A mortgage broker like John Charcol will be able to talk you through your options and what you can afford.
Motivations Matter Too
Any decision is going to be fuelled by your motivations, from needing more space as your family grows to choosing a different location better suited to your commute or lifestyle requirements. So before you go looking at properties or areas, really think about why you want to move. How have your needs changed and what do you most value in a home now? It’s important to have a level head and balance motivation vs finances so be realistic about what you can afford and avoid overstretching your budget.
The 3 Rs – Renovation, Relocation and Research
Viewing properties in areas you’re interested in is going to help crystallize your thoughts. Spend time doing the research and take notes on must-have features for your next step on the property ladder. Key things to look for in a new home include location, size, storage and outdoor space. You never know, you might find inspiration on ways to upgrade your existing home! Equally, certain attributes may only be achievable through moving – such as attaining a bigger driveway or being closer to work. Get quotes for home improvements and compare these with the costs of moving to a new place with your desired traits, as this will help you figure out what the better option is financially.
Go Forth and Weigh Up Your Options
Once you have a clearer idea of what you can afford, why you need a change and what you want to get out of this next phase of homeownership, it’ll be easier to get down into the nitty gritty and make a list of pros and cons for both choices – staying or moving. For example, releasing equity may allow you to fund an extension or renovate and add an extra bathroom but not both. It will also take time and may inconvenience you. On the other hand, moving to a property that already has the attributes you want may seem more straightforward but could be more expensive and will involve actually packing up your house and moving, as well as relying on a property chain. When writing down your pros and cons, make sure you also calculate the total ongoing costs in both scenarios, including mortgage payments, running costs and potential home improvement loans. This will help you take a step back and see each scenario’s impact on your lifestyle in the long term.
Think Home Improvements Are Right for You But Not Sure on Next Steps?
If making improvements on your current property appeals to you but you’re not sure on what the best options are or how to proceed, consider the varying benefits of different projects.
For example:
- Kitchen and bathroom upgrades often yield excellent resale returns
- Adding living space can accommodate growing families
- Energy efficiency measures like double glazing and solar panels appeal to buyers while also enhancing insulation savings on energy bills
- Low cost cosmetic improvements like paint and fittings can refresh worn properties without being too much hassle
Whatever work you decide to carry out, make sure you budget realistically for materials, labour and any required permissions such as planning permission. Also ensure you get quotes from qualified tradespersons and check work guarantees.
Before securing any additional finance its imperative to understand the prospective costs against expected gains in quality of life and property value. Do not overextend your finances as you run the risk of having future affordability issues regarding your mortgage if your circumstances change.
Financing Home Improvements
Financing options for home renovations and improvements include savings, loans and further advances.
Savings
Following your research, you may discover you can pay for certain desired home improvements without releasing equity from your property and relying on your savings instead. This can be a simple way to boost your property value without disrupting your long-term outgoings. Equally, you may find that you can use savings alongside some secured lending to do more work on your property and achieve the home of your dreams.
Remortgages
A remortgage is where you take out a new mortgage with a new lender, sometimes releasing equity that can fund home improvements. Remortgaging can be a good option if your fixed deal is about to end and/or your credit history and overall circumstances are better than when you took out your first mortgage, as this can enable you to secure a cheaper rate. Note that remortgaging before the end of your fixed deal can incur ERCs (early repayment charges) which can make this option less cost-effective.
Further Advance
A further advance is a product you can take out with your existing lender that enables you to use available equity in your property as security for extra borrowing, without disrupting your original mortgage. It essentially operates alongside your existing mortgage but is technically a separate product with its own plan and rate. Further advances avoid the conveyancing costs that come with arranging a remortgage with a new lender, but further advance interest rates can be more expensive than some remortgage rates.
On the other hand, a further advance allows you to keep your existing mortgage rate which is ideal if you’re locked into a low rate you don’t want to give up or you haven’t reached the end of your fix and want to avoid any ERCs (early repayment charges).
Second Charge
If the existing lender can’t raise the funds you require, consider a second charge mortgage, also known as a secured loan. A second charge works similarly to a further advance in that it runs alongside your first mortgage, except it’s with a different lender from your main mortgage and can be more expensive.
You make capital and interest payments each month on your second charge over an agreed term, typically 5 – 25 years. Interest rates vary depending on factors like your credit rating, but second charge rates are often higher than those on standard mortgages and further advances. The lender loans you an agreed amount, secured against your property through a legal charge entered with the Land Registry. This charge is ranked after your first mortgage lender – which means your first mortgage lender would have priority regarding receiving their funds if the property was ever repossessed.
Penalty fees apply for late repayments or repaying the loan early. If you default entirely, the lender can repossess your home to recover owed money.
How Do You Know Which is the Best Option for Raising Funds for Home Improvements?
Consider:
- Long term costs - how will additional monthly repayments impact your current budget and ability to repay your main mortgage? Will remortgaging onto a completely new product be more or less cost-effective?
- Your loan-to-value ratio – how much equity do you want to release and what’s possible for your circumstances? Second charge lenders may cap your LTV at 85% whereas a remortgage lender or a further advance (subject to the lender) may allow LTVs up to 95%
- Your current mortgage – do you want to keep your fixed rate or avoid ERCs on your original mortgage? In these situations, a further advance or second charge may be a more suitable option than a remortgage
- ERCs – most fixed products incur exit fees if paying off the loan early. This can mean that remortgaging onto a new deal before your fixed rate period ends can be more expensive. Equally, second charge rates tend to be higher so you’ll need to consider if its financially comfortable for you to maintain these payments until you reach the end of the ERC period
Summary
While home improvements offer benefits, conduct thorough research and planning before committing to either moving home or staying and carrying out renovations. Consider all options, calculate the different potential costs and try to keep some extra padding for unexpected expenses.
Whichever path you take, planning carefully for all likely expenses is wise. Speak with one of our experience mortgage advisers who can help determine the most suitable type of deal and loan amount for your needs. Call us on 0330 433 2927.
Category:Nicholas Mendes
