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Secured loans for extensions and renovations

An extension, loft conversion or whole house renovation is often the largest sum a household spends after buying the home itself. A secured loan lets you borrow a larger amount over a longer term than most unsecured credit, with your home as security and your existing mortgage left in place.

That structure suits a project with a clear cost and a plan. It is a poor fit for an open ended budget, because every pound borrowed carries interest for the life of the loan and the debt is secured on the property.

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Who this tends to suit

Homeowners with an existing mortgage who want to keep it, perhaps because the current rate is competitive or a remortgage would trigger early repayment charges. Also those whose project cost exceeds what a personal loan would cover, or who want a longer repayment period to keep the monthly payment manageable.

A remortgage or a further advance from your current lender may be cheaper for some households. Ask the broker to compare them, not only to arrange a secured loan.

Budgeting the project

Work from written quotations rather than estimates. Include professional fees, planning and building control charges, VAT, and a contingency for the unexpected. Builders commonly ask for staged payments, so think about when the money is needed as well as how much.

If the work spans several months, a lump sum released at the start means paying interest on money that sits in your account. Discuss the timing with the broker; the sequencing of a larger project is worth planning before you apply.

How lenders look at it

Lenders assess affordability on your income and outgoings, not on the value the work might add. They also look at the combined loan to value of your mortgage and the new loan against the current value of the home, before the work is done.

Structural changes can affect a lender's view of the property. Tell the broker what the project involves, whether planning permission is needed and whether you will live in the home during the work.

Costs to compare

Ask for the total amount repayable over the full term, not only the monthly payment. Check the fees, whether they are added to the borrowing, and any early repayment charge that would apply if you later remortgaged the whole debt.

Use the calculator to see how the term changes the cost. A longer term lowers the payment and raises the total interest.

Before you commit

  1. Confirm the full project cost from quotations, with a contingency.
  2. Compare a secured loan with a remortgage, a further advance and unsecured credit.
  3. Check affordability if your income fell or a variable rate rose.
  4. Ask how the borrowing would be released and when the first payment falls due.
Read next
Secured loan for home improvementsHow to budget, stage the borrowing and compare the alternatives.How much equity do you need?Combined loan to value with worked examples.Secured loan or remortgage?When each route tends to make sense.Fees explainedBroker fees, lender charges and when they are paid.