Banks are now more keen to offer home-improvement loans, writes John Cradden, and rates are becoming increasingly competitive
So you've decided you want to renovate or extend your home and you've been spending hours poring over stacks of interior design magazines, visiting kitchen showrooms and hardware stores and sourcing quotes from tradesmen.
But if you don't have enough cash in the bank to make your vision a reality, the next step will be to look at your financing options.
The good news is that the banks have shown themselves to be keener to lend out for improvements than other types of unsecured personal loans.
Part of this may well be due to the demand that has been stoked by the home renovation tax relief scheme (HRI), which was extended for a further year to December 2016. This scheme gives you a tax credit of 13.5pc on qualifying expenditure up to a value of €30,000 that can be offset against your income tax over two years.
"We're seeing quite a lot of activity from people looking for home-improvement loans," said Simon Moynihan of price comparison site Bonkers.ie.
"It's interesting because most of the banks now have competitive home-improvement loans following KBC's launch of theirs in April this year. Before that, there wasn't much going on."
A spokesman for KBC said recently that home improvements are the second most popular reason to take out a personal loan. Its home-improvement loan rates are as much as 5pc lower than KBC's standard loans, which are also fixed. "When KBC launched their home-improvement loan, it was designed to be the best value unsecured loan in the market for customers borrowing €10,000 or more," said Mr Moynihan. "Since then, other major banks have started competing in that space and now Bank of Ireland and Permanent TSB offer cheaper home-improvement loans than KBC. "
These products are attractive to the banks because they allow for unsecured lending to homeowners who are typically very secure people to lend to."
For amounts over €20,000 paid back over three years, the Bank of Ireland charges a variable rate of 7.5pc APR, making it the best unsecured loan in the marketplace, followed by Ulster Bank at 7.9pc APR and Permanent TSB with 8.2pc APR. However, look more closely and you'll see that for some banks, the rates for home-improvement loans are not significantly better than for their most competitive standard personal loans. "
The rates aren't much better than standard personal loans, but they are better," said Mr Moynihan.
But the cheapest personal loan rate of all is Permanent TSB's 'cash-secured' loan at 6.4pc APR (variable). As the name implies, it's a secured loan not dissimilar to that of a credit union, in that the bank will use your savings as security for any borrowings.
So you can get a loan of say, €10,000 at a rate of 6.4pc APR, as long as you have €10,000 in a PTSB savings account — a discount of over 6pc on its standard rate for a loan of this size. But even if you have less than that in your savings account, you can still get a discounted rate. So if you have €5,000, you'll be entitled to a 7.5pc APR rate on a loan of €10,000.
Speaking of credit unions, your local branch is likely to have rates specifically for home-improvement loans that are highly competitive. Youghal Credit Union in Cork offers a 6.99pc APR rate for home improvements, while Dundalk Credit Union is offering a rate of 6.99pc APR on a standard personal loan.
If you're inclined to stay loyal to your current bank, you may be entitled to a discount over standard rates. Ulster Bank, for instance, offers a 1pc discount to its current account customers, while KBC offers a 2pc discount. This is just as well, as their standard rates are not particularly competitive.
You can view some bank personal loan rates through the financial product comparisons section of the CCPC website Consumerhelp.ie, but bear in mind that it only compares standard loans and not those offered for particular purposes, such as home improvement.
You can, however, see some of these cheaper, specific-purpose loans if you check out price comparison site Bonkers.ie.
One other factor that might affect your choice of loan is whether or not a bank will charge for any early repayments on the loan. For instance, with KBC, there are no charges for early repayments on up to €10,000, but there maybe some for amounts over that.
As well as the Home Renovation Incentive scheme, don't forget to look at the grants for energy efficiency improvements. Some banks and credit unions will offer 'green loans'. For instance, St Canice's CU in Kilkenny offers such a loan at a variable rate of 8.5pc APR.
A well as the tax relief currently available under the home renovation scheme, not many people know that you can claim tax relief on the interest paid on an unsecured loan used for home improvements, but you'll need to hurry.
Like mortgage interest relief, you will only qualify if you took out such a loan before December 2012. In addition, according to Red Oak Tax Refunds, if you are already receiving the maximum relief for your mortgage interest, then there will be no additional relief due for your home- ^^^ improvement loan.
But if you have already paid off your mortgage or no longer qualify for mortgage interest relief (it will be phased out entirely by December 2017), it's worth checking out if you are due a tax credit.
The tax relief is not granted at source unlike mortgage interest relief, where your lender reduces your mortgage repayment by the tax credit due. Instead, you receive a tax credit for this relief so you actually have to pay tax to get the benefit of it.
You can claim your 20pc tax relief for the interest paid on your home improvement loan at the end of the tax year and you can claim back for the last four years. So if you took out a loan of €20,000 in, say, 2011 and paid it back over four years at an APR of 8.5pc, the cost of credit would be around €3,500, so the credit should be worth about €700.
The relevant form (IT60) is not available online so you'll need to ring the Revenue, and you will also need a certificate from the bank or credit union stating the purpose of the loan.