Home improvement loans: what to consider before taking on debt

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It seems we just can't resist a spot of DIY over the Bank Holiday weekends and we're prepared to borrow money if we can't afford to fund these home improvements from savings.

One in five homeowners have taken out a loan to improve their home, so what are the best options if you need to borrow?


British homeowners take out loans averaging £14,037 for home DIY and renovation projects, according to the poll by comparison site, Moneysupermarket.com, which found 16% of us plan to spend on home improvements this week, while a further one in five will be taking a loan out in the near future to improve their home.

With a stagnant property market and the drop in house prices putting many mortgage-holders in negative equity, home projects are expected to be even more popular than usual this spring as people opt to improve rather than move.

With cash remaining tight, it's no surprise people are turning to loans and credit cards to fund renovations, but Tim Moss head of loans and debt at moneysupermarket.com, is warning consumers to think carefully before taking on debt: "Before you are tempted to splash out on expensive improvements, think about whether a simple lick of paint or new carpets would have a same impact on your home compared to an expensive fitted kitchen or a conservatory."

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There are plenty of competitive options available at the moment, including Alliance & Leicester and M&S personal loans, which both have a current headline rate of 6.9%, over a period of five years. Moss adds "A homeowner could take out a £14,000 personal loan with one of these providers and make regular monthly repayments of £275 per month. The total amount repayable would be £16,511 at the end of the agreement."

To avoid being lumbered with an unaffordable debt, it's important to thoroughly think through your plans and only borrow the amount you need.

Credit cards are another option for those looking to make home improvements, although higher interest rates mean that the overall amount paid back will be more than with a loan of the same value. Moss adds that interest-free products, such cards offering 0% on purchases work well for those borrowing smaller amounts, and are confident they can pay back the balance with the promotional period.

"Anyone going down this road should seriously consider setting up a direct debit, even just to pay off the minimum amount as missing a payment or paying late could mean you end up losing the promotional rate and having to pay larger than expected interest on the remaining balance."

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