5 ways to pay for home improvement

The weather has taken a turn for the better and for many homeowners this will trigger the start of home improvement season. Trouble is, home improvements don’t come cheap. But if you need to borrow, there’s more choice and competition on rates than ever before. So let’s take a look at the five best ways to pay.

Young woman working on upcycling an old chair, painting blue with help from lamp

1. Using your savings

The good thing about using your savings for home improvements, rather than for holidays or a new car for example, is that – as well as making your environment a nicer place – you are making an investment. The right improvements can increase the value of your home exponentially. For instance, a modern bathroom could add as much as 3% to its price tag, while a decent new kitchen could add 5%, according to estimates.

If you have cash to hand, using it to fund your home improvements could be the most sensible option – especially with savings rates so low. However, if your money is tied up in a fixed rate bond for example, it may not be worth paying the associated penalty to get the cash out – if you are able to get it out at all. Remember also, that if you withdraw funds from a cash ISA, you will not be able to top up your allowance again within the same tax year. 

The main downside to paying directly with cash, however, is that you will not be protected should anything go wrong, such as the company carrying out the work going bust or even turning out to be fraudsters. So, even if it’s just the deposit, putting the cost on a credit card and then using your cash to pay it off is a good idea, as I go on to explain.

2. Putting it on a 0% purchase credit card

If you use a credit card to pay for your refurb and the work turns out be faulty or even never gets completed because the company goes bust for example, you’ll be able to claim the money back from your card provider.

This is the case even if you only pay for the deposit on your card –so long as the total bill comes to between £100 and £60,260, you’ll be covered under the terms of either the Consumer Credit Act 1974 or the more recent Consumer Credit Directive. Once you’ve used your card, this protection is locked in place.

If you’ve not got the money squirrelled away in savings to clear the balance with, you should get a card that charges an introductory 0% on purchases. This will enable you to clear the cost (preferably by monthly direct debit) during this interest-free period.

Santander’s Credit Card for Purchases and Tesco’s Clubcard Credit Card for Purchases currently come with the longest interest-free period on new purchases, both offering 18 months at 0% before jumping to a representative APRs of 18.9% (variable).

If you regularly shop at Tesco, the Clubcard credit card could be the deal to go for, as it enables you to rack up the Clubcard points faster. You get one point for every pound you spend in Tesco and one point for every four pounds you spend elsewhere.

However, if you are planning on clearing your debt, sooner, why not throw in some cashback instead…?

3. Interest-free purchases with cashback

The American Express Platinum Purchase Cashback card for example, offers 16 months at 0% interest as well as 1.25% cashback on all purchases – meaning you not only get to spread the cost of your home improvements without paying interest, you actually get money back on them.

Once this 16-month honeymoon period is up, you’ll be paying an APR of 18.7% (variable) once the card’s £25 annual fee is factored in. You’ll have to be quick too as the card is only around until April 3, 2014. You can read more about the deal here.

Alternatively, if you bank with Nationwide, the Select Card offers 15 months at 0% on new purchases and 0.5% cashback. You will then be charged a representative APR of 15.9% (variable).

However, if your credit card limit won’t stretch to the cost of your home improvements, unsecured personal loans are also offering great value at the moment with rates at their lowest ever.

4. Personal loans

If you’re planning major improvements such as converting the loft or adding a conservatory then you can easily be looking at spending upwards of £10,000 – in which case a personal loan could be the way to fund it.

Sainsbury’s Bank, which took the gong for best loan provider at MoneySuperMarket’s 2014 Supers, has just lowered the APR on its standard personal loan to a market-leading and all-time low of 4.4% APR. This rate applies to borrowing of between £7,500 and £15,000 and you can choose a repayment term of between one and three years. If you need longer to repay, Sainsbury's has also reduced its rate on the same-size borrowing to an APR of 4.5% against a four or five year repayment term. However, both loans are short-term offers, so you will have to apply before 3pm on March 28.

Santander offers a slightly higher rate of 4.5% on the same levels of borrowing to everyone – but goes further for existing customers, by extending the same loan to £20,000 instead. If your improvement project is a particularly big one, it could even be worth making the switch to its 123 account before you apply.

Then there’s one final option – letting your home raise the money for its own improvements…

5. Using your home

If you’re planning on building an extension then it might be worth approaching your mortgage lender to see if you can free up some cash with a further advance. However, borrowing extra against the value of your property is not a decision to be taken lightly. The additional funds may not be offered at the same rate as the rest of your mortgage for example, and could even tie you in for a certain period. If this doesn’t tally with any tie-ins on your main mortgage, things can get tricky when it comes to renewing your deal.

If however, your current mortgage deal is coming to an end, you could move the whole loan – plus the extra required for the work – to one lower rate. For instance, the West Brom Building Society is offering a market-leading fixed rate of just 1.48% for two years before jumping to 3.99%. For more options, compare a range of products on our mortgage channel.

Final tip! Once the work is done, make sure you notify your insurer to make sure your home insurance is completely up to date – failure to do so could invalidate your policy.

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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