Moneytimes: Your best funding options for Spring renovations
This week's Moneytimes column by Jill Kerby looks at financing those Spring renovations or DIY projects...
Anyone who owns an old house (mine is nearly 130 years old) that has been subject to more than a century of weather and wear and tear knows that there is, literally, an endless list of maintenance and renovation jobs.
Over the last 27 years, everything from rising damp to rebuilt chimneys have been undertaken. We gave the house a new kitchen and bathroom in 2005, most rooms have been replastered and painted (numerous times); fireplaces have been moved and removed and it has been rewired and the heating system has been replaced (twice).
I mention this litany of undertakings because this is what happens when you buy an old house. Since my husband and I are pretty hopeless at anything DIY, the term ‘spring cleaning’, as in jobs that need doing, always gives me a sinking feeling. We are facing a €30,000 bill to install new windows…
How to finance such a big project, or any other major spring renovation is the big problem, of course, whatever the size of the job. And here are the options that every ‘spring cleaner’ should be investigating before they book a contractor or tradesperson – if you can find one.
There is c€140 billion sitting in cash in Irish bank and post office accounts at the moment, earning near zero interest. The return on this money will be instantly justified with lower utility or maintenance bills if you need a home energy retrofit.
The 13.5pc VAT refund Home Renovation Initiative Scheme ended in 2018, and a recent TaxBack.com survey found that 73pc of people questioned think it should be rolled out again. However, until next October you may qualify for a SuperHomes grant of up to 35pc of the cost of an energy refit to bring your home up to a BER B2 standard or above. See superhomes.ie.
Home renovations are often funded via a personal loan – a typical interest rate is c10pc, or if the job is a large, expensive one, a second mortgage spread over the duration of the existing mortgage.
Michael Dowling of Dowling Financial is mortgage adviser, and he is also a director of the Malahide Credit Union. While a second mortgage can mean a low repayment rate (c2pc), "the application process will be very time consuming and expensive as you will need to fill out all the same mortgage documentation. You’ll need to get another valuation, hire a solicitor to upgrade the deeds. Expect the approval process to take about eight weeks these days [due to Covid] and to cost at least €1,000 plus VAT."
An alternative worth considering, especially if the amount needed is under €30,000, is a home improvement loan from your credit union, he says.
"Our CU offers a 7pc, fixed repayment rate on the diminishing balance of the loan and comes with free life insurance. A standard CU personal loan can be as high as 11.99pc. But you can top up or clear the loan repayment at any time with no penalty. Yes, the repayment is higher than a mortgage, but if you qualify you will get an answer and a cheque in a couple of days."
Credit unions are also more likely to lend money to retired people who are long standing members than the banks, says Dowling.
Drawing down equity from the value of your home is another option, but only Seniors Money/Spry Finance is offering this borrowing facility, and only for homeowners aged over 60.
The percentage size of the loan you can borrow is age-based; the capital and fixed rate interest at 5.5pc is not paid during your lifetime unless the property is sold or left uninhabited for a period of time. The smallest loan is €20,000.
A couple age 70 and 67, owners of a house worth €500,000, can borrow a maximum of €110,000. The longer you live, the greater the accumulated interest – though there is a no-negative equity guarantee.
Since an equity release loan will likely have an impact on the value of the property that can be passed on to heirs, the longer the loan lasts, another way for older people with limited savings to undertake expensive home renovations is to consider asking their adult children to lend them the funds via cheap second mortgages on their own properties.
The parents may be in a position to pay the modest monthly repayments from their pension incomes and this family loan is more likely to avoid eating away at a future inheritance. Family loans are best arranged with the assistance of a financial adviser and family solicitor.