How do I finance a conservatory?

By THIS IS MONEY
Updated:

 

We are looking at ways to finance building a conservatory. We thought the best way to raise the £6,500 required would be through an extension to our mortgage or a secured loan over, say, five years. But recently we found a product from HFS Loans called an 'interest back loan'. It is a secured loan that promises to refund 100% of your interest up to a maximum of £4,000 provided the loans runs for a minimum of 60 months. The rates are higher than some other secured loans on the market but we think the interest back offer looks very attractive. This is the first time we have seen such a product. What do you think? MDF, West Midlands

Linda Whitney says: We checked this out with HFS and found that the deal, which has been on offer for some 20 months, works as you have described it. Like you, we were curious about how the company could make any money on it, so we talked HFS general manager Paul Naden. It seems HFS is a broker and passes your loan application on to a panel of six to seven lenders. HFS makes its money though commission paid by the lenders. The interest payback is made by UK Insurance Ltd of Leeds, a medium-sized insurance company which is a member of the Association of British Insurers and the Insurance Ombudsman Scheme.

It seems to be a perfectly legitimate offer, but there are terms you have to remember before taking out a loan under it (and HFS is keen to point them out). In order to claim your interest back:

• You must keep payments up to date for the full five years (and as you have to pay by direct debit, you have to ensure your bank is always on the ball). More than two missed payments and your interest-back deal is off.

• You must keep the loan for the full five years, and as it is secured on your house that means it would have to be settled if you moved.

• When the five years is up you have 21 days in which to claim your interest back - and no-one reminds you to do so.

As for whether it is good deal, bearing in mind that you say better rates are available, Justin Modray, independent financial adviser at Chase de Vere, says: Compare it with other five-year deals by getting the best rate lenders to tell you exactly how much you will pay to borrow your £6,500 and then comparing that with the HFS deal assuming you claim all your interest back. Don't forget that other deals will have conditions attached too, so bear that in mind when choosing.

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