House Extension, use savings or mortgage.

gareth60

Hi all,

Not sure if this is the correct area as it falls into several subjects.

Anyway, we are considering an extension on the house, a side extension as a play room. This is all subject to the council agreeing of course.

Anyway, i'm not sure how to fund it. A builder we have approached has said that it will cost less than £20k.

We have savings of £13k (10k in a savings account and 3k in an ISA) and I hope, if my performance is good at work, be getting about £3k after tax as a bonus.

There is a slight shortfall, yes, but what is the best thing to do?

We come out of a 5 yr fixed rate in october this year.

So;
1. do I use our savings and "find" the extra.
2. Re-mortgage in october and add the extra to the mortgage and invest our savings (how, where?)
3. Bit of both

Thanks all.

koexelek

I would normally say if you can borrow money at a cheaper interest than you can borrow it, do so. If you can't don't.

Not quite as simple as that though. You might like having the security of savings behing you, if anything unexpected happens.

I might use some of the savings, but not clear them out completely... so option 3 for me

sarkin

remortgage in October and overpay the differrence, save the savings for a rainy day.

getmore4less

I think it depends on other factors like income,mortgage,surplus,when the work needs doing.

I would not want to deplete my savings to nothing unless I could rebuild them quickly.

I would want to be making better use of my ISA allowances, why is only £3k in ISA's?

I would also think about the cost of this space, £20k with interest(thats over £200pm over 10y@6%) is it worth it, are ther other things that this money could be used for that give better value.

Locoblade

We're about to build a small extension for a similar cost so a bit further down the line than you are, and from our experience the planning preparation and application process can easily take 6 months or more if the local authority don't like your first application for any reason, so considering you're remortgaging next month, you also need to weigh up the cost of having the additional borrowing sitting in a savings account earning less interest than its costing you on the mortgage.

What we ended up doing was agreeing the additional lending with our mortgage provider at the same time as our last remortgage (2 years ago) for a 2 year fix. Because we weren't ready to use the money at that point we delayed drawing that additional fund for a year (Nationwide allow a year, others may not) and only took it out when we needed to. This was good at the time but as it turns out wasnt ideal long term as it put our main mortgage and additional lending out of sync. Now we're remortgaging again this means we'll have to pay an ERC on the additional borrowing as we're moving away from Nationwide, but it's only about £250 so not the end of the world. I think we probably broke about even overall as the fixed rate at the time was quite low compared to having the loan on SVR with no tie-ins which would have meant no ERC, but I think in the current climate where fixed rates are closer to SVR rates, you may be better off just getting the additional borrowing on the lenders SVR as and when you need it early next year (or later), rather than bundling it into your remortgage next month and having the money sitting around for several months, or delaying the additional borrowing on a fixed rate and then having to pay an ERC when you next remortgage.

dimbo61

As you have £10,000 in a savings account and not in an ISA I would use that first after you have got planning permission and council approval.
With the other £3k in ISA,s and hopefully £3k bonus you nearly have enough to pay for the building work without taking out a second mortgage and paying any fees.
The builder should not ask for £20,000 up front and you should only pay in stages as the work progresses.
Save like mad over the next couple of months and sort out the mortgage without any extra borrowing if you can.
Consider the size of the extension and if you need a downstairs loo ( adds value ) two rooms, two storey etc
A tiny room on a big house might not add value/ be usefull or a massive extension that takes up all the garden might not work either GOOD LUCK