The coronavirus pandemic has triggered a huge demand for space – both inside and outside the family home following the successive lockdowns which confined millions to the same four walls.

But with soaring house prices, many may be tempted to stay put and instead add space, and value, by renovating, converting, and extending their homes.

And one of the popular ways to cover the cost is through a homeowner loan – also known as a second charge mortgage – which capitalises on the house price boom.

Homeowner loans explained

A homeowner loan is finance which is secured against your property. It is based on the equity you have built up in your home, and is separate to your existing mortgage.

When you take out a mortgage, it’s important to continue repayments as your home may be repossessed. The original lender has a first charge on your property, while the homeowner loan provider has a second charge – essentially claiming the remainder.

At Pepper Money, property renovation is one of the most common reasons customers take out a homeowner loan.

According to figures from second charge broker, the Loans Warehouse, 14% of loans totalling £140m in April 2022 were purely to cover the cost of home renovations, while 40% were for a mix of property improvement and debt consolidation.

A homeowner loan from Pepper Money allows you to borrow up to 100% of your property’s value – that is the equity after your existing mortgage balance is taken into consideration. This is particularly beneficial now amid rising house prices.

The minimum property value is £75,000 to apply for a homeowner loan with Pepper Money, and homeowners can borrow between £5,000 and £1m. The repayment term is three to 30 years, subject to individual circumstances and credit checks.

We offer flexible overpayment options without applying penalties to enable customers to either reduce their term or their monthly repayments.

Why consider a homeowner loan for a property renovation

There have been five successive Bank of England base rate hikes, making it more expensive to borrow money or pay off debt.

The total amount you can borrow on unsecured loans and credit cards may also not be enough to cover the full cost of a renovation project. Acceptance also depends on your credit history and affordability, and you may not be offered the representative APR.

According to Rated People’s Home improvement trends report 2022, the average cost of an extension has risen from £34,851 last year to £37,893, while a loft conversion has increased from £31,060 to £34,899 in 2022.

In addition, core material costs have risen by up to 45% in the year to February 2022, while demand for builders has also boomed, with the majority of those surveyed by Rated People saying they’ll increase their prices as a result.

For some homeowners, remortgaging may present an opportunity to get a better rate or take on additional borrowing. However, these rates are also creeping up and a homeowner would need to borrow the amount outstanding on their mortgage, in addition to the cost of a home improvement, likely at a higher rate than they have currently.

Average figures from data site Moneyfacts reveals average rates on a two-year mortgage fix (all LTVs) have risen from 2.34% in December 2021 to 3.25% as at 1 June 2022. Meanwhile, the average five-year mortgage fix has risen from 2.64% in December 2021 to 3.37% in June.

Homeowner loan rates remain steady. The Loans Warehouse gave an average figure of 6.5%. At Pepper Money, we offer competitive fixed, discounted and variable rate products, but the actual rate we offer depends on your personal circumstances. The average loan rate stands at 6.2%.

A remortgage may not be suitable for everyone, particularly those with cheap lifetime tracker rates. In this scenario, a homeowner could find they need to remortgage the whole amount so they’re put on a higher rate.

Another reason why a homeowner loan may be more suitable over a remortgage is based on timing.

It takes an average of 22 days from the submission to completion of a homeowner loan, while a remortgage can take several weeks.

Having the cash quickly can help you plan, budget, and pay for your renovation project in a more measured way. And with a home extension adding an average of £90k to properties in the home counties, it’s a good investment on your money.

See Pepper Money’s homeowner loan calculator to find out what your repayments might like look each month, and how much you could end up paying if you apply.

To apply for a homeowner loan with Pepper Money, visit our homeowner loan page or call us on 0808 239 1496. Our homeowner loans are also available through selected brokers.