Does a Home Improvement Loan Build Home Equity?

Negative Equity, House Repossession & Falling UK House Prices

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Rather than move house, people are taking out home improvement loans to modify their family home and increase home equity. However, with a trend of falling UK house prices, secured home improvement loans may serve to create negative equity, creditor harassment and even house repossession.

What is a Secured Home Improvement Loan?

A secured home improvement loan is a way of borrowing money and using the family home as collateral. Popular choices for home improvements include a: new fitted kitchen, loft conversions and double glazing. The intention of a home improvement loan is to change the look of a house or to build home equity for when the property is sold.

secured home improvement loans

Falling UK House Prices

A Nationwide report showed that UK house prices have fallen 16.6% – about £30,000 – since January 2014. Not only is it becoming harder to get home improvement loans, falling UK house prices have meant that any projected increase in property value is not the case. Home improvement loans have served to create negative equity, affordability issues, creditor harassment and home repossession.

Negative Equity and Secured Home Improvement Loans

Experian research in April 2014 projected that a 20 per cent fall in UK house prices would plunge 78,394 householders into negative equity with the figure rising to almost 166,000 if house prices fell 25 per cent. A home improvement loan can only serve to push more people into negative equity issues as it utilises the equity to perform the home improvements.

Loan Default on Secured Home Improvement Loans May Result in Creditor Harassment

Taking out a home improvement loan in uncertain times can be a road to financial disaster. A lot of things can change over the term of a home improvement loan, including involuntary redundancy. This could result in loan default, creditor harassment or even house repossession in certain circumstances.

Those with good credit could consider taking out an unsecured home improvement loan to boost home equity. With rising levels of involuntary redundancy, it is important to be careful and also check affordability before proceeding. Home improvement loans, used in the right way, will build home equity, but the benefits of this may not be felt for a number of years in the current economic climate.