Money Advice Service

If your home has increased in value since you bought it, you could borrow a further advance from your mortgage lender. Find out when this may be a sensible thing to do, but also when it should be avoided.

Increasing my mortgage – what is a further advance?

A further advance is taking on more borrowing from your current mortgage lender.

This is typically at a different rate to your main mortgage.

This route can make sense if:

  • Your lender’s further advance is competitive
  • You don’t want to remortgage or switch lenders.

You can spread your payment over a long term and your interest rate should be lower than a personal loan.

But always check the market to see if you can get a better deal before committing.

When a further advance might make sense

There are two situations when a further advance might be suitable:

  • To fund home improvements
  • To raise a deposit for a second property, perhaps as a buy-to-let investment

Are further advances a good idea for paying off debts?

Increasing your mortgage for home improvements might add value to your property but using a further advance to pay off debts is rarely a good idea.

Consider the alternatives first.

The additional loan would be linked to your property, which you could lose if you weren’t able to keep up your extra loan payments.

Even though interest rates on mortgages are normally lower than rates on personal loans – and much lower than credit cards – you could end up paying far more in the longer term.

Before looking to borrow against your property, try to prioritise and clear your loans.

Before you apply for a further advance

Before you consider applying for a further advance, you should make sure that all of the following apply:

  • You’ve got a good credit record
  • You feel comfortable with the additional monthly payments and you’ve worked out that you can afford them, and
  • The value of your home has increased beyond the mortgage amount you originally borrowed – known as having equity in your property.

Work out how much you can afford

To find out how much you can afford to borrow use our Mortgage affordability calculator.

As a starting point, you must work out if you can afford the additional borrowing.

Use our Budget planner to see if you can afford the repayments.

If you believe you can afford this route, follow these steps:

  1. Contact your mortgage lender and ask them to explain their process and timings. Lenders will take you through your budget looking closely at your income and outgoings to make sure you can afford it. Outgoings include your other debt repayments, household bills and living costs. They will also ‘stress test’ your mortgage increase to make sure you could cope if interest rates rise or your circumstances change. Lenders will only recommend a product if it is suitable for you. Ask whether you have to borrow over the full term of the mortgage, or if you can borrow over a shorter term. Ask for the final cost.
  2. Find out if there are any fees to increase your mortgage.
  3. Work out the cost of any extra borrowing with our Mortgage calculator – remember to factor in the effect of an increase in the interest rate.

Borrowing for other major purchases

If you’re looking to pay for something expensive other than home improvements or investment property start by looking at your options where the loan is not secured against your home.

For example, you could:

  • Take out an unsecured personal loan, which means your home isn’t at risk – read our guide to Personal loans.
  • Apply for an unsecured peer to peer loan, where you borrow from someone else via what’s known as a social lender – find out more in Peer to peer loans.
  • Apply for car finance, if you want to buy a car – read our guide to Car finance.
  • Save until you can afford to pay for whatever it is you want without borrowing money.

Although in some cases (depending on the loan term and interest rate) these options might not be as cheap as getting a further advance, they won’t be secured against your home.

It’s important to understand the true cost of borrowing – and the consequences of not keeping up with your repayments.

Read our guide below to help you decide which option is best for you.

When remortgaging could be an option

You could also switch to another mortgage lender and increase the sum borrowed.

But this is only suitable if you can save more than you might pay out in application fees to the new lender and early repayment charges for leaving your existing lender.

Remember you might be able to get a better deal elsewhere and lenders often offer the best deals to new customers, so shop around first.

You’ll still have to go through the same strict affordability checks looking at income and outgoings when going to a new lender.

Read our guide on Remortgaging to cut costs.

This article is provided by the Money Advice Service.