Home improvements: How to get cheap finance as building costs rise

Construction costs may be soaring, supply chains collapsing, and the impact of Brexit still being felt; nonetheless, even the briefest of strolls in many towns and suburbs across the country will reveal the level of home refurbishment currently under way.

Despite the obvious expense, people, it seems, have money to spend.

But where is it coming from? And how can you get it?

Cash of course, would be ideal, but failing that, we take a look at the cheapest – and easiest – ways to raise money to fund a retrofit/refurbishment of your home.

Town and Country: What will €225,000 buy in Dublin and Connemara?

---

Forever home on large gardens in Delgany for €1.375m

---

Victorian grandeur on Palmerston Park for €3.8m

---

Rathfarnham rectory surrounded by parkland for €1m

---

Grants

The new Sustainable Energy Authority of Ireland (SEAI) grant scheme offers up to €25,000 towards the cost of a retrofit.

According to a spokeswoman for the SEAI, if you opt for a “one-stop shop” retrofit, then the amount of the grant will be deducted from your total bill at the outset, and you won’t have to find funds to cover this. Instead, the one-stop-shop provider will claim the grant back from the SEAI on your behalf.

If, however, you are doing only one or two energy upgrades as part of your renovation, then you will need to have the money to hand. According to the spokeswoman, you will typically pay for the costs up front, and then claim the grant back yourself from the SEAI on completion of the works.

Bank/credit union loan

It’s one of the quickest ways of sourcing money and typically you won’t need to be a customer of a bank to apply. It’s also popular.

A spokesman for Bank of Ireland says that demand for home-improvement loans jumped "significantly" in 2021 compared with 2020, while AIB says such loans account for a quarter of its personal lending in the year to date.

A key advantage is speed. Depending on your circumstances, you may find that you can be approved for a loan quite quickly. With AIB, for example, the bank says it can get a decision within three hours on amounts of between €1,000 and €30,000, although amounts in excess of this will take longer.

While Bank of Ireland lends for up to seven years, with AIB it may be possible to borrow over a term of 10 years – this, of course, reduces your monthly repayments but does increase your overall interest bill.

Both AIB and Bank of Ireland allow you to take a break from the loan repayments – with AIB you can take one month off a year.

Typically, you’ll be able to repay your bank loan early, at no extra cost.

The maximum you can borrow through a personal loan is typically between €65,000-€75,000.

It may not be one of the cheapest methods to raise finance however, so it can be worthwhile to shop around.

Given the imminent departure of both KBC Bank and Ulster Bank from the Irish market, you can expect less competition, but there are still options, including Permanent TSB, An Post as well as Avant.

The loans tend to be more expensive when you borrow lower amounts; with Bank of Ireland, you’ll pay a rate of 8.5 per cent APR on borrowings of up to €10,000, dropping to 6.8 per cent on amounts in excess of €20,000.

An Post is another option, and it lends up to €75,000 for such loans, while Avant has one of the lowest rates on the market, at 5.9 per cent on amounts of between €2,000 and €75,000 at terms of up to 10 years.

Green loan

You may be able to save money by opting for a green loan, although you will have to show evidence that the money being borrowed is going towards retrofitting your home.

Bank of Ireland, for example, offers a Green Home improvement loan with an APR of 6.5 per cent, which is a bit less than its headline rate, while AIB’s green personal loan has an APR of 6.4 per cent.

An Post has one of the best green rates on the market at about 4.9 per cent APR, on amounts of up to €75,000. To qualify for this low rate you’ll have to show that more than 50 per cent of the loan is being used to complete works availing of the SEAI home energy grants.

Opting for a green loan could lead to substantial savings; for example, €50,000 borrowed over five years will cost €6,339 with An Post’s green loan, compared with €11,677 with AIB based on its 8.95 personal loan rate, so savings then of almost €5,500.

Your local credit union is also an option. A number of credit unions, including Mullingar, offer the Greenify home-improvement loan, an unsecured loan of up to €50,000 at 6.75 per cent APR over up to seven years.

Another initiative is the CU Greener Homes, which offers a rate of 4.9 per cent if you can bring your home up to a BER rating of A3 or higher, or 7.98 per cent for a BER rating of lower than B2. It’s available across a large number of credit unions including Connect and Core in Dublin and First South in Cork.

Mortgage top-up

In addition to the cost of funds, one of the biggest limitations of a personal loan is the amount you can borrow. As anyone who has gotten a quote for substantial work of late will know, it’s expensive.

So, if you’re looking for a greater amount – or you’d rather put in the effort for a cheaper lending rate – then releasing equity in your home is a popular way of financing a home refurb project.

Liam O’Connor, sales director with Irish Mortgage Corporation, is seeing an uptick in applicants looking to release equity.

“Predominantly the reason is that people want to add value to their home,” he says.

In essence, releasing equity means looking at the difference in what your home is worth and the mortgage outstanding. To qualify then, you’ll need to have a certain amount of “equity” you can release, as banks will typically only lend up to 90 per cent – at best – of the value of your home.

For O’Connor, the “best rule of thumb” is 80 per cent LTV.

“You’d be doing well at 90 per cent,” he says.

Given price increases of late, however, this does mean that many people who bought in recent years will qualify for equity release.

So, for example, let’s say you have a home with a mortgage of €350,000 outstanding on it. However, it’s now worth €700,000, which means you have a loan to value of 50 per cent. This means you may be able to borrow up to €210,000, which would bring your LTV back up to 80 per cent.

You will be able to borrow the “top-up” over terms of between five to 30 years (provided you don’t go past a certain age 70 with Bank of Ireland; 68 with AIB) and remember, this doesn’t have to be the same term as your regular mortgage.

And you can apply for a top-up, even if you’re on a fixed-rate mortgage, as a new term/interest rate can apply to the fixed-rate element of the loan.

You may also be able to access a cashback – Bank of Ireland will give you 2 per cent of your new mortgage back (so €4,200 in the above example).

The major downside of equity release is that the process is akin to taking out a mortgage; so you’ll have to get all those salary certificates, bank statements, etc, in order to apply.

A spokesman for Bank of Ireland says the conveyancing element “may be more straightforward” if the customer already has their mortgage with the bank.

Moreover, lower amounts tend to be more straight forward.

“With the majority of lenders, once the equity release is below €75,000 it’s a relatively simple process,” says O’Connor. “Some lenders will look for specific documentation and confirmation that the work is being done; other lenders will be comfortable enough where the value of works is less than €75,000”.

Indeed, AIB says that for smaller top-ups, where you are not reliant on the property increasing in value, the loan can be drawn down in a lump sum.

“Otherwise it is by staged payments, against proof of work complete,” a spokesman says.

You will need to factor in the costs of a valuation – typically about €150 –as well as the cost of topping up your mortgage protection.

If doing so, it may be worthwhile to shop around for a new mortgage-protection policy – remember the cheapest rates are often found with a provider other than your lender.

You’ll also be bound by the Central Bank’s mortgage rules when applying for equity release; this means that you can only bring your total borrowings up to 3.5 times income – although there are exemptions.

“It’s more likely that an exception will be made available to a non first-time buyer,” says O’Connor, noting that demand is typically less.

In terms of costs, borrowing €100,000 over 20 years will cost an extra €510.63 a month, or €22,551.90 over the life of the mortgage, based on an interest rate of 2.1 per cent. If you can cut the term to 15 years, your cost of funds will fall to €16,662 but your monthly repayments will increase to €648.12.

Release equity – and switch

If you are considering releasing equity, remember that it may make sense to switch your mortgage at the same time.

As O’Connor notes, you can “kill two birds” by doing both at the same time, as the conveyancing process will only have to be done once.

It can make good financial sense. On the one hand, you might end up saving considerably on your existing mortgage, which can neutralise the cost of your additional borrowings to refurb your home. And at the same time, you’ll have enhanced the value of the property, and may benefit from lower energy costs.

You may find that you’ll be precluded from the best rates, however, as these tend to be offered to those with loan-to-values of 60 per cent or less, and by releasing equity, your LTV may be some way north of this.

Even if you don’t want to switch provider, it’s worth talking to your bank about a lower green rate if you have done a substantial retrofit to your home. Typically you’ll need an A/B BER rating to qualify.

AIB has a rate of 2.1 per cent, for example, on its “green mortgage”, while Bank of Ireland offers a discount of 0.3 per cent on its fixed rates.

By switching, you may also find that you get money towards the cost of legal fees, etc, from your new lender – and potentially a cashback. AIB offers a €2,000 “switcher payment”, while Bank of Ireland, for example, says it will give a cashback of up to 3 per cent of the mortgage value and PTSB offers 2 per cent back at drawdown and 2 per cent on monthly repayments until 2027.

Remember, however, that if you want to save money, opting for the lowest rate – rather than the most generous cashback – might be a better option.