Re-mortgage. Take equity for renovation now or wait

[richatnort]

I know this is very subjective but I'm after some advice on what I should do.

We moved into our 3 bed semi 2 years ago and took a 2 year fixed mortgage with a 10% deposit. It's coming to renew time and I don't know if I should take the equity and value we've added (brought to modern standards and knocked through kitchen & dining room) out now as we want to do a loft conversion soon.

We're thinking if we know we're staying here 15+ years we should maybe do it before we get a kid but again good old brexit has me worried due to interest rates increasing and the potential for house prices to decrease and we maybe go into negative equity on the house.

I guess what I'm after is a couple of people's opinions who might be in the same situation or what your thoughts on what I should do, so either wait 5 years then look to do it or get it done now before we have a kid.

[snake_oil]

Negative equity doesn't mean anything unless you want to move. Given you are staying for c15 years then I say fill yer boots and get it done. Proviso being you can afford the repayments, of course.

[Sarnie]

Increasing lending when you are concerned about falling into negative equity doesn't sound like a good match to me?

[Testaburger]

I'm very debt-averse, but in this context, negative equity is only a paper loss. If the repayments are affordable, a 15-year timeframe seems a suitable horizon to recoup any medium term paper losses.

[Jamessd]

Although only a ‘paper’ loss, being in negative equity will prevent you from moving to a different lender (as all lenders require an LTV of maximum 95%) and even your existing lender won’t be able to offer you a deal come renewal time, so you’ll get stuck on their standard variable rate (probably around 5%) rather than being able to do a product transfer to the type of short term fix or tracker rate that you’re currently on.

[Testaburger]

Jamessd said:

Although only a ‘paper’ loss, being in negative equity will prevent you from moving to a different lender (as all lenders require an LTV of maximum 95%) and even your existing lender won’t be able to offer you a deal come renewal time, so you’ll get stuck on their standard variable rate (probably around 5%) rather than being able to do a product transfer to the type of short term fix or tracker rate that you’re currently on.

A valid point.

[wisbech]

The mortgage provider may not agree that you have added a huge amount of value to the house - knocking a wall down and modernising it may not be things another buyer would be willing to pay for

[xyz123]

richatnort said:

I know this is very subjective but I'm after some advice on what I should do.

We moved into our 3 bed semi 2 years ago and took a 2 year fixed mortgage with a 10% deposit. It's coming to renew time and I don't know if I should take the equity and value we've added (brought to modern standards and knocked through kitchen & dining room) out now as we want to do a loft conversion soon.

We're thinking if we know we're staying here 15+ years we should maybe do it before we get a kid but again good old brexit has me worried due to interest rates increasing and the potential for house prices to decrease and we maybe go into negative equity on the house.

I guess what I'm after is a couple of people's opinions who might be in the same situation or what your thoughts on what I should do, so either wait 5 years then look to do it or get it done now before we have a kid.

Ultimately its your choice, so feel free to 8gnore this opinion.

you would be surprised "modernisation" and "knocking through wall" will add substantial value to house. Consider getting a proper valuation done. You never know what may happen and for me personally I will never have negative equity, especially when it's for something that don't necessarily need immediately.

[rufusgti]

Why not save up for the loft conversion or take a bank loan and pay it back over 5 Years. Borrowing over 15 Years is unlikely to be a cheap way of doing it. And if you do slip into NE you will kick yourself for the big mortgage.
Anyone claiming NE doesn’t matter has never tried to obtain a mortgage under NE.
The lenders have a very different idea to an EA valuation when it comes to extra lending. Don’t be surprised if they don’t value your property any higher than 2 years ago no matter what you have modernised.

[richatnort]

Thanks for all the advice so far it's really given me food for thought.

I should of also added that the area we are in and especially the road i'm on in the last year has seen 5 houses go up for sale and we've been happy to see that a similar house to ours as it is now went for 30k over what we paid so I think the area we're in is becoming popular with first time buyers. We've also seen a house with a loft conversion albeit it didn't have a dormer went for around 60k more than we paid too.

In terms of negative equity it's good to know that it will only affect us if we move mortgage providers so this is definitely something to consider to. As for saving up for it again another thing i'm thinking of doing but it's whether we do the work before we have a baby (going to start trying next year) as i'm told it's quite disruptive and therefore doing it with a child could make it even more difficult and something we need to consider. Plus as I mentioned above with houses selling for a lot more than we paid for ours I do wonder if i would fall into negative equity on it.

We did get the house valued once all the work was done (peace of mind for me that we'd made the right decision on the house & work) and they valued it again similar to the house above but at 40k more than we paid.

[xyz123]

I missed this from your original post but if you are planning for a kid day in a year , don't forget to consider reduced income during maternity leave and subsequent child care costs when considering your affordability.

[stuthemong]

richatnort said:

In terms of negative equity it's good to know that it will only affect us if we move mortgage providers so this is definitely something to consider to. As for saving up for it again another thing i'm thinking of doing but it's whether we do the work before we have a baby (going to start trying next year) as i'm told it's quite disruptive and therefore doing it with a child could make it even more difficult and something we need to consider. Plus as I mentioned above with houses selling for a lot more than we paid for ours I do wonder if i would fall into negative equity on it.

This wasn't what was said. A previous poster warned you that in 2 years if your current lender thinks you're in negative equity, you will be trapped at SVR, unable to obtain a low mortgage rate. It was a very good point to make, it would be worth speaking with your mortgage company about this specific issue before proceeding. It may be cheaper to put the renovation on credit cards, than increase the % of the entire mortgage.

[paulrockliffe]

In a similar position at the moment, your question is one of whether it's cheaper to secure access to the capital now or pay less mortgage interest in the short-term and then whether you can access capital cheaply enough at the time you do the building works. The balance on that will depend on lots of factors, but the most important one is likely to be how long before you plan to do the works.

There are two options that I would consider first. The easiest one is to time your next remortgage to coincide with roughly when you're going to be planning the works. Put off the decision if you're not doing the work for a few years.

The other thing you could look at is whether you can get an offset mortgage and increase your borrowing. So long as you resist the urge to blow the lot, you wouldn't pay more interest, but you would have access to the capital when you need it. Whether that works for you would depend on the rate differential for an offset vs a normal product, which will depend on your LTV ratio and equity level.

The short advice is to message Sarnie, that's what I did.

[number2]

stuthe said:

richatnort said:

In terms of negative equity it's good to know that it will only affect us if we move mortgage providers so this is definitely something to consider to. As for saving up for it again another thing i'm thinking of doing but it's whether we do the work before we have a baby (going to start trying next year) as i'm told it's quite disruptive and therefore doing it with a child could make it even more difficult and something we need to consider. Plus as I mentioned above with houses selling for a lot more than we paid for ours I do wonder if i would fall into negative equity on it.

This wasn't what was said. A previous poster warned you that in 2 years if your current lender thinks you're in negative equity, you will be trapped at SVR, unable to obtain a low mortgage rate. It was a very good point to make, it would be worth speaking with your mortgage company about this specific issue before proceeding. It may be cheaper to put the renovation on credit cards, than increase the % of the entire mortgage.

If one is in negative equity, it is also possible that the lender may place a margin call i.e. ask for funds to be added get the loan out of negative equity - if the market is in a rout (with the likely associated economic conditions), and the loan is of higher value than the asset backing it, they may want some extra security.

[NickCQ]

number2 said:

If one is in negative equity, it is also possible that the lender may place a margin call i.e. ask for funds to be added get the loan out of negative equity - if the market is in a rout (with the likely associated economic conditions), and the loan is of higher value than the asset backing it, they may want some extra security.

No way can they do this on an owner-occupier mortgage on standard retail docs, as long as you keep making your payments.
Not even if the bank sells your loan to an aggresive private equity fund.

[number2]

NickCQ said:

No way can they do this on an owner-occupier mortgage on standard retail docs, as long as you keep making your payments.
Not even if the bank sells your loan to an aggresive private equity fund.

Fair enough, my mistake; in buy-to-let it is often possible.

[Ollerton57]

rufusgti said:

Why not save up for the loft conversion or take a bank loan and pay it back over 5 Years. Borrowing over 15 Years is unlikely to be a cheap way of doing it. And if you do slip into NE you will kick yourself for the big mortgage.
Anyone claiming NE doesn’t matter has never tried to obtain a mortgage under NE.
The lenders have a very different idea to an EA valuation when it comes to extra lending. Don’t be surprised if they don’t value your property any higher than 2 years ago no matter what you have modernised.

There's a number of reasons why you wouldn't take a bank loan. If it's unsecured the upper limit is usually low c.£25k and you have much higher interest rates.

If it's a secured loan you'll still pay higher rates than a mortgage and it's still using your house as collateral..

Cheapest rates are mortgage rates. Use it and overpay the capital if you have the means.