Re-mortgaging to borrow more to pay for extension

[Daaaveee]

Hopefully a quick one but my googling skills aren't good enough to find the answer!

We're looking at doing at extension, and borrowing an additional £80k on the mortgage to do so.

Our current house is worth around £180k and we will have £82k left on the mortgage, so therefore total borrowing of £162k.

First question is our LTV calculated against the current house price or the predicted price post extension (conservatively £250k)? We could get the £162k required against the £180k but that is 90% LTV, compared to 65%, so the rates aren't as good.

Also, as only £82k is required to pay off the current mortgage, what happens to the extra £80k? Does it just land in your current account ready to pay the builder etc?! That would seems a bit too simple.

[Evolved]

It’ll be valued on its current value. You could borrow to extend, out it on a short term and then look to move it once works are complete to obtain a better rate.

There may be other options available too, others will likely know.

[Sarnie]

Evolved said:

It’ll be valued on its current value.

This.

No lender will lend against the future value.......what if they release the money and you don't do the work and they are left with a property in negative equity......

PS: Not all lenders will capital raise up to 90%.......

[Daaaveee]

Thanks guys, I thought that might be the case.

Evolved said:

It’ll be valued on its current value. You could borrow to extend, out it on a short term and then look to move it once works are complete to obtain a better rate.

Looks like this seems to be the best course of action then? Second charge mortgages seem to have higher rates.

90% LTV should hopefully still be possible, its just about £40 a month more so over 2 years that will be fine, then re-mortgage on the new valuation.

The fixed rate isn't up for another 11 months so plenty of time to hammer the savings and try to reduce the amount borrowed.

[FredClogs]

It is the best course of action to borrow short term and remortgage once works are completed, if you can... But be aware...

1) It's no guaranteed and probably unlikely that what you spend will have an equal effect on your house price
2) the short term loan will be taken into account when you remortgage
3) If you make a start and invite the valuer round to see a half done job expecting him to share your vision prepare to be disappointed.

[Chicken Chaser]

I'm in a very similar position. £190k house currently and looking to add a £60-70k extension. The same build in the street has marketed at £255k so it's going to be there or thereabouts. We have no intention of moving and I can swallow some overspend as it'll make our house perfect for our needs at the moment.

2 mortgages run on the house due to a house move.
I've got one mortgage of 90k running at base rate + 2%, the other is 2.64% until 2020
In the first mortgage we have overpaid by £20k but can take that back out if required.

We've got £10k of savings at present, I've got a 0% CC currently empty with 36 months on it with a limit of £11k

So I'm going to need between £20-£30k to complete.

Should my missus get another 0% card with a decent limit, personal loan or another further advance from the lender?

I'm happy running at greater levels of debt while the build is ongoing and then consolidating once complete. Our mortgage is well within our budget at present so we can swallow any short term pain.

[mikeiow]

Sounds like borrowing to raise 80K to improve value by 70K.
Obviously this could be right for you - ideal location, etc - but is it worthwhile looking to see what you could 'upgrade' to for £250K?
Obviously there is more cost involve in moving, not to mention stress and hassle....
.....but the loan side may stack up better (~160-170K against a value of 250K is likely to get better rates?)
Just a thought....

[gazza5]

mikeiow said:

Sounds like borrowing to raise 80K to improve value by 70K.
Obviously this could be right for you - ideal location, etc - but is it worthwhile looking to see what you could 'upgrade' to for £250K?
Obviously there is more cost involve in moving, not to mention stress and hassle....
.....but the loan side may stack up better (~160-170K against a value of 250K is likely to get better rates?)
Just a thought....

I was having the same discussion with my mother in law - our extension would cost about £90 - £100k, our house would possibly only rise £80k - so I was trying to say whats the point - might as well move.

Her response - stamp duty costs will be saved!

Our current house is fine for what we need - but I am no way doing the extension - have found it cheaper to just move and redecorate.

You then have the hassle of the extension being built - dust everywhere - living on a building site - possible complications along the way.

I do agree if you buy a house you could find issues too.

With regard to borrowing - swallow the 90% mortgage costs for 2 years - once work finished you house will be revalued - and be back onto a lower rate - if its the house you really love etc,

[Chicken Chaser]

It's in an ideal location although I'd personally like a detached, and a bigger garden. The semi element limits the value on the house. Current sq footage is just over 1000sq ft, the extension should give us 1600sq ft not inc garage.

I could and would move, but my missus is adamant that she wants to stay. I'd probably move within the estate as there are bigger houses but there's not many and it's pretty desirable as we are in a pocket of low value houses in a fairly affluent area.

I did think about the lack of stamp duty on moving up and the fact that with the cost of this extension, it's the last jigsaw piece in the puzzle on this place. I dont have to spend more to get it looking how I want it as it's done.

[OMITN]

Daaaveee said:

Also, as only £82k is required to pay off the current mortgage, what happens to the extra £80k? Does it just land in your current account ready to pay the builder etc?! That would seems a bit too simple.

Yes - new lender pays off old lender directly, surplus lands in your account.

We did the same last year (numbers bigger). Money sat there for a couple of months before the builders started and the slowly leached away as we paid for the work in stages.

NB I then spent a pile of cash (redundancy payment) in addition to the borrowing.

Frustratingly the house still isn’t complete - if you’re having underfloor heating be very careful about having an anhydrite/gypsum screed floor - so hasn’t been revalued. We were at 55% LTV with the borrowing and I expect we’ll be at the 45-50% level on revaluation.