Best way to borrow for a house extension?

[gangzoom]

After lots of discussion we've decided now is the right time for us to go for a mini 'grand design' type house extension.

We've got an architect coming next week and quite excited at what they might be able to come up with........the less exciting bit is how to fund it all .

The extension I estimate (with no science at all) will be £100-150k ish, and will add just 1 extra bed room. This is our 'final' home, so we are not going for extra value on the house, simply making it the nicest possible space to spend the next 30-40 years + our lives in.

Our current LTV is 57% down from 70% when we moved in a couple of years a go, so affordability from a mortgage point of view should be fine. I see from our lender we can borrow additional capital against the house at sub 2% fixed for 5 years - I would aim to clear the extra debt within 5 years.

The sensible thing to do would be save up for the build but life is short, and a sub 2% loan seems so cheap its just so tempting to go ahead now.

I cannot thinking a cheaper way to fund the build compared to additional mortgage borrowing. Given it seems like it takes 2-3 years to go from first site visit to finished product we might even be able to pay a substantial amount of the costs through just saving up between now and start of building.

Anyone whos done a decent house extension got views/ideas on how they funded it, or budgeted for the project?

Edited by gangzoom on Friday 23 August 05:47

[covmutley]

Just got a 2nd mortgage on our place for our extension. Only 20k though. Most of the cost is coming from a gift from the out laws

Presumably it will add value to the house though? I plan to remortgage when complete, as the new value will dip us safely below 60%ltv. Based on current rates, my new mortgage would be about £150 a month less- just slightly more than what I pay on the 2nd mortgage! I.e the 20k should end up being free..

[C0ffin D0dger]

We got a "home improvement" loan from our mortgage provider at the same rate and over the same term as our actual mortgage. Luckily we had a good enough LTV ratio that they'd allow us to borrow what we needed. Both the wife and I were in well paid full time jobs at the time so we had a fair bit of cash and were able to pay outright for bits like the kitchen, granite worktops, flooring, bathrooms as well as part funding the extension from our own savings.

I was hoping to overpay our mortgage and the loan but my missus was pregnant by the time we'd finished the extension and it was (financially) all down hill from then on When we remortgaged with HSBC they wanted to keep the home improvement bit separate, no idea why as it was clear we'd spent it on the house but again it was at the same terms as the main mortgage. For now I'm happy paying the lot over the ~11 years left we've got on the mortgage but if the wife decides to get a better job at some point in future then we can pay a bit more.

[brickwall]

You’ll struggle to get cheaper finance than a mortgage, so long as you’re within LTV and income limits.

It might not be the most flexible though, but that’s the trade-off.

[DonkeyApple]

brickwall said:

You’ll struggle to get cheaper finance than a mortgage, so long as you’re within LTV and income limits.

It might not be the most flexible though, but that’s the trade-off.

Especially if you plan to pay it down promptly as above.

[mikeiow]

I hope that randomly chosen cost improves the entire layout: £100-150k sounds a huge number for one new room
We’ve done a couple of modifications over the years....& chose to add to the mortgage (actually with “extra” mortgage bits): our sums combined actually totalled a similar number.

I would say they have been well worth it: my advice would be to do your best to find a builder who ‘gets’ what you are after, keep a close eye on costs but don’t skimp.
Our first one was broadly fine but shocking on some of the tasks (for example, leading to us ripping floor tiles out and replacing 8 years later ‘cos they were badly laid....). Our second was superb...& has since done jobs for several friends!

Good luck!

[Chicken Chaser]

We took out another mortgage on our place. Owned roughly 50% so went all out and went up to 90% LTV. We've got some savings which we are spending on it too and at the end I'm expecting around 60% LTV when I remortgage it all next year. Rates are low, our mortgage is affordable just about on just one salary so we are ok. We took out a tracker for 2 years as it allows us to switch after just 1 year without penalty.

[gangzoom]

mikeiow said:

I hope that randomly chosen cost improves the entire layout: £100-150k sounds a huge number for one new room

Total guess on my part, but the 'vision' is to create a crazy master suite upstairs, something like this, and then see if its possible to literally take the roof off to form a double height main corridor with a sky light that will run down the spine of the house.....£150k might not be enough, literally no idea on cost .

Interms of actual rooms, we're not adding anything as technically the box room been expanded is already a 'bedroom', from a 'investment' view its a total no no, but this is pure indulgence and something we've both wanted to do for a long time.

Edited by gangzoom on Saturday 24th August 03:54

[gangzoom]

brickwall said:

You’ll struggle to get cheaper finance than a mortgage, so long as you’re within LTV and income limits.

It might not be the most flexible though, but that’s the trade-off.

Yeah looks like a loan to up our LTV to 70-85% is the best way.

I still can barely believe how cheap these products are, even 5 year fixed is only just over 2% APR.

I know its the government plan to get us to spend ££££, but still its crazy deals providing you can afford the repayments.

Not going to look a gift horse in the mouth, spoke to the architect on the phone yesterday, he found our house on Google Earth and seems to already get the brief, first visit booked for new week.

Cannot wait, I feel like a kid before xmas eve, even more excited about this than any car purchase we've ever made, a very odd feeling .

[DonkeyApple]

Don’t forget that what is underpinning the ability to lend to you at this rate is that they own the underlying asset and you’re increasing it’s value plus that 2% is every year for maybe the next 20 years and with some customers, a rollover fee on top every 2-5 years. The rollover fees probably don’t change much paying down the additional amount as quickly as is prudent is where it becomes really cheap.

[Jambo85]

I went to see my mortgage provider with this question and was astounded at how ready they were to throw debt at me. Initially the interest rate is based on LTV using the current value of the existing house, and the term is matched to my main mortgage (two years remaining on a fix I think). Existing mortgage is unaffected even though technically my LTV is changed (to my mind...)

After those two years when (hopefully) the extension is done, the two debts are consolidated into one, and the hopefully increased value of the house is taken into account and a new deal proposed at a hopefully lower overall LTV.

[gangzoom]

Architect came, and we're going to go ahead with the build!

I still don't quite believe how cheap house mortgages are, £150k addtional borrowing will only put up our repayments by under £500/month. Our daughters nursry fees are £1100/month.

Anyways 1.9% 5 year fixed is the plan, puts our LTV back up to 80%, though the plan is to bring the mortgage debt back to nearly its current level by the time the fixed deal is done so need to save £2.5k/month starting now.

Would have been nice to clear the majority of the mortgage debt before we hit 40, but life is for living, bring on the wall to calling windows .