A loft conversion is one of the most popular ways to add extra space and value to a home in the UK.
Whether youโre looking to create an additional bedroom, a home office, or a playroom, converting your loft can be a cost-effective way to maximise your propertyโs potential without moving. The cost of a loft conversion in London typically starts from ยฃ40,000 to ยฃ50,000, based on adding one bedroom and a bathroom.
Finding the best way to finance it is crucial to ensure you manage the costs efficiently and avoid financial stress.
Using personal savings
If you have personal savings, using them to finance your loft conversion is often the best option. Thereโs no need to borrow money or pay interest, which makes it the cheapest method overall. Having the full amount saved allows you to complete the project without taking on debt.
However, this approach only works if you have sufficient savings available and youโre not left without an emergency fund afterward. If your savings fall short, you may want to consider combining them with another financing option.
According to a 2023 survey by Halifax, around 30% of UK homeowners prefer to use savings for major home improvements like loft conversions. The advantage of using savings is that you avoid interest payments and donโt have the stress of managing loan repayments.
Remortgaging your home
Remortgaging is one of the most popular ways to finance a loft conversion. If you have enough equity in your home, you can remortgage your property to release cash. This is done by increasing the size of your mortgage to borrow against the value of your property.
Remortgaging usually comes with lower interest rates compared to personal loans or credit cards, making it a cost-effective option for larger projects like a loft conversion.
For example, if your home is worth ยฃ300,000 and you currently have a ยฃ150,000 mortgage, you could remortgage to borrow an extra ยฃ30,000 to ยฃ50,000 for the conversion. The advantage of remortgaging is that the loan is repaid over a long term, which can make monthly repayments more affordable. However, youโll need to ensure that you can afford the increased mortgage payments over time. Additionally, if interest rates rise, your payments could go up.
Home improvement loan
A home improvement loan is another way to finance a loft conversion. This is a personal loan specifically for home renovation projects. Home improvement loans can be either secured or unsecured.
A secured loan is tied to your property, which usually offers lower interest rates but comes with the risk of losing your home if you fail to repay. Unsecured loans, on the other hand, donโt require your home as collateral, but they typically have higher interest rates and may offer a lower borrowing limit.
An unsecured home improvement loan is a good option for smaller loft conversions or if you donโt want to remortgage your home. However, interest rates can range from 3% to 10%, depending on your credit score. If you have poor credit, you may face higher rates, so itโs essential to shop around and compare lenders before choosing this option.
Bridging loans
If you need quick access to funds and plan to sell your property soon after the loft conversion, a bridging loan could be a short-term solution. Bridging loans are used to “bridge the gap” between selling one property and buying another, or in this case, completing a loft conversion before refinancing or selling. These loans offer fast access to large sums of money, but they come with high-interest rates and fees, so they are best suited for short-term projects.
Bridging loans are usually repaid within a year or two and can be a good option if you plan to sell your home after increasing its value with the loft conversion. However, if the sale of your property takes longer than expected, the high interest on the loan can quickly add up, making this a more expensive option in the long run.
Government schemes for energy efficiency
If part of your loft conversion involves making your home more energy efficient, such as improving insulation or installing energy-saving windows, you may be eligible for a government grant.
The UK government offers schemes such as the Energy Company Obligation (ECO) scheme, which helps fund energy-efficient home improvements for eligible households. While these grants wonโt cover the full cost of the loft conversion, they can help reduce expenses related to energy-saving features.
According to Energy Saving Trust, properly insulating your loft can reduce energy bills by up to ยฃ225 per year. This means that including energy-efficient elements in your loft conversion could not only lower your utility bills but also make your home more eco-friendly.
Final thoughts
Financing a loft conversion requires careful planning and consideration of your financial situation. Personal savings are the cheapest option, but if you need additional funds, remortgaging, home improvement loans, or even bridging loans can help cover the costs.
If your loft conversion includes energy efficiency improvements, you may also be able to take advantage of government schemes to reduce some of the expenses. Always plan your budget carefully and be realistic about how much you can afford to borrow, ensuring that you choose the best option for your circumstances.
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