Many wealthy homeowners renovate and remortgage rather than pay huge stamp duty bills

Wealthy homeowners renovate rather than pay huge stamp duty bills.                                                                     

Huge stamp duty bills are encouraging more wealthy homeowners to improve, extend and renovate their existing properties rather than move.

A recent Spear’s article highlighted a growing trend in the super-prime property market: owners of expensive homes are choosing major renovation projects instead of buying another property and paying a large stamp duty charge. Spear’s reported that overseas buyers can face stamp duty costs of more than 18% on some purchases, while buyers purchasing homes above £1.5 million pay at least 12% on the portion above that level.

For high-net-worth homeowners, the sums involved can be substantial. On a £5 million, £10 million or £20 million property purchase, stamp duty can run into hundreds of thousands of pounds. It is easy to see why some wealthy homeowners are asking whether it makes more sense to refurbish, extend or remodel the home they already own.

Are wealthy buyers being put off by high stamp duty bills?

High stamp duty costs can make moving less attractive, particularly in London and the South East, where higher-value properties are more common.

The standard residential stamp duty threshold in England and Northern Ireland is £125,000, and higher rates apply as the purchase price increases. Buyers of additional properties usually pay a 5% surcharge, and non-UK residents usually pay a further 2% surcharge on residential purchases.

For wealthy buyers, these extra costs can change the calculation. Some still want to move for lifestyle, school, space or location reasons, but others decide to improve their current property instead. Renovating can allow homeowners to create more space, modernise the layout, upgrade energy efficiency and add value without triggering a new stamp duty bill.

Why homeowners are borrowing for renovations

Many homeowners use additional mortgage borrowing to fund home improvements. This can be done through their existing lender, by remortgaging to a new lender, or through private bank lending for higher-value cases.

Additional borrowing is often used to fund:

• Large extensions
• Loft conversions
• Basement developments
• Kitchen and living space redesigns
• Energy efficiency improvements
• Full refurbishments
• Swimming pools, gyms and wellness spaces
• Garden rooms and home offices
• Cinema rooms and entertainment spaces
• New bathrooms and luxury interior upgrades

For wealthier borrowers, renovation projects can easily cost hundreds of thousands of pounds. Some super-prime refurbishments can run into the millions, especially where structural work, listed-building consent, basements, or high-end finishes are involved.

How lenders issue additional mortgage borrowing

Lenders usually issue additional borrowing as a further advance, which is an extra mortgage loan secured against the borrower’s property. The lender checks the homeowner’s income, affordability, credit profile, property value and current mortgage balance.

Some borrowers keep their existing mortgage and add a new loan part with the same lender. Others remortgage completely to a new lender and raise the extra funds at the same time. In some cases, a second charge mortgage can be useful, particularly if the borrower wants to keep an existing low fixed rate and avoid early repayment charges.

Private banks can also be useful for high-net-worth clients, especially where income is complex or comes from bonuses, business profits, investments, carried interest or foreign currency.

When is a good time to take additional mortgage borrowing?

One of the best times to review additional borrowing is when your current fixed rate is ending. At that point, there may be no early repayment charge, and a broker like Trinity Financial can compare a product transfer with your existing lender against a full remortgage to a new lender.

This is often the right time to ask:

• Can my existing lender offer the extra funds?
• Would a new lender offer a better rate?
• Can I borrow more based on my current income?
• Should I keep part of my mortgage on a fixed rate?
• Would a tracker or offset mortgage provide more flexibility?
• Will the renovation increase the property value?

Homeowners should ideally start reviewing options several months before their current mortgage deal ends, especially if the renovation budget is large or the property needs a new valuation.

Aaron Strutt, product director at Trinity Financial, says homeowners should compare the full range of options before adding borrowing to their mortgage. “Many clients ask us whether they should move or improve, and stamp duty is often a major part of the conversation. If the cost of buying another property is extremely high, raising money to renovate can make sense, but the numbers need to be carefully checked.

“Borrowers should not assume their existing lender is the best option for additional borrowing. Some banks are more generous than others, and some will not lend enough for large projects. It is often worth comparing a further advance and remortgage, especially if the client has a competitive fixed rate they do not want to lose.”

Which lenders are good for home improvement mortgages?

The best lender depends on the borrower’s income, property value, existing mortgage, loan-to-value, credit profile and renovation budget. Also, the amount of work planned.

Trinity Financial works with more than 90 lenders, including high street banks, building societies, specialist lenders and private banks. For straightforward residential cases, high street lenders such as Halifax, Nationwide, Santander, NatWest, Barclays and HSBC may be competitive. For larger mortgages, complex income, or high-net-worth clients, lenders such as Investec and Coutts, as well as other private banks, may be considered.

Some lenders are better for:

• Large loan sizes
• Interest-only borrowing
• Complex income
• Self-employed applicants
• Bonus-heavy income
• Older borrowers
• High-value London homes
• Second charge borrowing
• Renovation projects completed in stages

What types of home improvements are popular?

Homeowners are increasingly focused on creating more space, improving energy efficiency and making their homes work better for modern family life.

Popular projects include open-plan kitchens, side-return extensions, loft conversions, basement conversions, home offices, cinema rooms, gyms, wellness areas and landscaped gardens. Energy improvements are also becoming more common, including better insulation, new windows, solar panels, heat pumps and upgraded heating systems.

For wealthy homeowners, the trend is often towards lifestyle-led renovations. Rather than paying a large tax bill to move, they may decide to create a property with better entertaining space, additional accommodation, home working areas, leisure facilities and improved privacy.

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The information contained within was correct at the time of publication but is subject to change.  It is for general information purposes and is not advice.

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