Construction costs may skyrocket, supply chains collapse and the impact of Brexit will still be felt; nevertheless, even the briefest of walks through many towns and suburbs across the country will reveal the level of home renovation currently underway.
Despite the obvious expenses, people, it seems, have money to spend.
But where does it come from? And how can you get it?
Cash of course would be ideal, but failing that, we’re looking at the cheapest – and easiest – ways to raise money to fund a renovation/upgrade to your home.
The Sustainable Energy Authority of Ireland’s (SEAI) new grant scheme offers up to €25,000 to help cover the cost of a renovation.
According to a SEAI spokeswoman, if you opt for a “one-stop shop” renovation, then the grant amount will be deducted from your total bill upfront, and you won’t have to find funds to cover this. . Instead, the one-stop-shop provider will claim the grant from SEAI on your behalf.
If, however, you’re only doing one or two energy upgrades as part of your renovations, you’ll need to have the cash on hand. According to the spokeswoman, you will typically pay the costs up front and then claim the grant yourself from the SEAI upon completion of the work.
Bank loan/credit union
It’s one of the fastest ways to find money and you usually won’t need to be a bank customer to apply. It is also popular.
A spokesman for the Bank of Ireland said demand for home improvement loans jumped ‘significantly’ in 2021 compared to 2020, while the AIB says such loans account for a quarter of his personal loans since the beginning of the year.
A key benefit is speed. Depending on your situation, you may find that you can be approved for a loan fairly quickly. With AIB, for example, the bank claims to be able to obtain a decision within three hours on amounts between €1,000 and €30,000, although higher amounts will take longer.
While Bank of Ireland lends for up to seven years, with AIB it may be possible to borrow for 10 years – this, of course, lowers your monthly repayments but increases your overall interest bill.
AIB and Bank of Ireland allow you to take a break from loan repayments – with AIB you can take one month off per year.
As a general rule, you will be able to repay your bank loan early, at no additional cost.
The maximum you can borrow through a personal loan is usually between €65,000 and €75,000.
However, it may not be one of the cheapest methods of fundraising, so it may be worth shopping around.
With the imminent departure of KBC Bank and Ulster Bank from the Irish market, you can expect less competition, but there are still options including Permanent TSB, An Post and Avant.
Loans tend to be more expensive when you borrow lower amounts; with Bank of Ireland, you’ll pay 8.5% APR on borrowings up to €10,000, falling to 6.8% on amounts over €20,000.
An Post is another option, and they lend up to €75,000 for such loans, while Avant has one of the lowest rates around, at 5.9% on amounts between €2,000 and €75,000 at terms up to 10 years.
You may be able to save money by taking out a green loan, but you will need to prove that the money borrowed is for home renovations.
The Bank of Ireland, for example, offers a green home improvement loan with an APR of 6.5%, which is a bit lower than its headline rate, while AIB’s green personal loan has an APR of 6.4%.
An Post has one of the best green rates around at around 4.9% APR, on amounts up to €75,000. To benefit from this low rate, you will need to prove that more than 50% of the loan is used to complete work benefiting from the SEAI home energy subsidies.
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 to €11,677 with AIB based on its personal loan rate at 8.95, a saving 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% APR over a period of up to seven years.
Another initiative is CU Greener Homes, which offers a rate of 4.9% if you can bring your home to a BER of A3 or higher, or 7.98% for a BER below B2. It is available at a number of credit unions, including Connect and Core in Dublin and First South in Cork.
In addition to the cost of funds, one of the main limitations of a personal loan is the amount you can borrow. As anyone who’s gotten a quote for a major job lately knows, it’s expensive.
So if you’re looking for a higher amount — or prefer to strive for a cheaper loan rate — freeing up your home’s equity is a popular way to finance a home improvement project.
Liam O’Connor, sales manager at Irish Mortgage Corporation, sees an increase in applicants looking to unlock equity.
“The main reason is that people want to add value to their home,” he says.
Essentially, releasing equity means looking at the difference between the value of your home and the outstanding mortgage. To qualify, you will then need to have a certain amount of ‘equity’ that you can free up, as banks will generally only lend up to 90% – at best – of the value of your home.
For O’Connor, the “best rule of thumb” is 80% LTV.
“You would do 90% well,” he says.
However, given recent price increases, this means that many people who have purchased in recent years will be eligible for the equity release.
So, for example, let’s say you have a house with an outstanding mortgage of $350,000. However, it is now worth €700,000, which means you have a loan at the value of 50%. This means you can borrow up to €210,000, which would bring your LTV down to 80%.
You will be able to borrow the “top-up” over terms of five to 30 years (provided you are not over a certain age of 70 with Bank of Ireland; 68 with AIB) and remember, it doesn’t have to be du same term as your regular mortgage.
And you can apply for a top-up, even if you have a fixed rate mortgage, because a new term/interest rate may apply to the fixed rate element of the loan.
You may also be able to access cash back – Bank of Ireland will pay you back 2% of your new mortgage (equivalent to €4,200 in the example above).
The main disadvantage of capital release is that the process is akin to taking out a mortgage; so you will need to get all those salary certificates, bank statements, etc., in order to apply.
A Bank of Ireland spokesperson said the transfer of ownership element “may be simpler” if the customer already has their mortgage with the bank.
Also, lower amounts tend to be simpler.
“With the majority of lenders, once the equity release is less than €75,000, the process is relatively straightforward,” says O’Connor. “Some lenders are looking for specific documents and confirmation that the work is in progress; other lenders will be quite comfortable where the value of the work is less than €75,000”.
Indeed, AIB says that for small recharges, where you are not dependent on the increase in the value of the property, the loan can be taken out in a lump sum.
“Otherwise it is by installments, against proof of complete work”, indicates a spokesperson.
You will need to factor in the costs of an appraisal – usually around €150 – as well as the cost of additional mortgage protection.
In this case, it may be worth researching a new mortgage protection policy – remember that the cheapest rates are often found from a provider other than your lender.
You will also be bound by the Central Bank Mortgage Rules when applying for capital release; this means you can only take your total borrowing up to 3.5 times your income – although there are exemptions.
“An exception is more likely to be offered to a buyer other than a first-time buyer,” says O’Connor, noting that demand is generally less.
In terms of costs, borrowing €100,000 over 20 years will cost an additional €510.63 per month, or €22,551.90 over the life of the mortgage, assuming an interest rate of 2.1% . If you can reduce the term to 15 years, your financing cost will drop to €16,662 but your monthly repayments will increase to €648.12.
Unleash equity – and change
If you’re considering freeing up equity, remember that it might be a good idea to change your mortgage at the same time.
As O’Connor notes, you can “kill two birds” by doing both at the same time, since the ownership transfer process will only need to be done once.
This can make good financial sense. For one thing, you could end up saving significantly on your existing mortgage, which can offset the cost of your additional borrowing to renovate your home. And at the same time, you will have increased the value of the property and can benefit from lower energy costs.
However, you may find that you will be locked out of the best rates, as these tend to be offered to those with a loan to value ratio of 60% or less, and by freeing up equity, your LTV can be somewhat north of this.
Even if you don’t want to switch providers, it’s worth talking to your bank about a lower green rate if you’ve done a substantial renovation to your home. Generally, you will need a BER A/B rating to qualify.
AIB has a 2.1% rate, for example, on its “green mortgage”, while Bank of Ireland offers a 0.3% discount on its fixed rates.
By switching you may also find that you get money back for the cost of legal fees etc from your new lender – and potentially cash back. AIB offers a ‘transfer payment’ of €2,000, while Bank of Ireland, for example, says it will give cashback of up to 3% of the mortgage value and PTSB offers 2% cashback to the levy and 2% on monthly repayments. until 2027.
Remember, though, that if you want to save some money, opting for the lower rate – rather than the most generous cashback – might be a better option.