Financing an Extension

vikkib21

I was hoping for some advice.

My husband and I are trying to decide whether to extend or move houses. We have been told by our current lender that we would be able to borrow significantly more on a new mortgage that we have currently.

In January 2008 we re-mortgaged for another 3yrs fixed rate, borrowing money to clear exsisting debts. We borrowed 80% of our house value.

We are considering significantly extending our house. How would finance work on this? Will banks lend money based on the value of the house after the extension? I am thinking that the extension will cost between 50K-100k with furnishings. We haven't even applying for planning permission yet, but I would be interesting in knowing our financial options.

ColinHardie100

The bank base your borrowing LTV on what the house is worth now (before extension).

Best course of action is to get some intial extension plans done, contact some builders to get quotes for the job and see if you can get a remortgage that will free up additional capital based on your current house value (might be tricky given your current 80% LTV....although I suppose it depends on the size of the extension)

If you can get the money together (albeit possibly at a poorer rate given the LTV above 80%), there is nothing to stop you once the house extension is complete, getting another (better rate) mortgage hopefully against your house that is worth more.

vikkib21

Thanks for the advice!

opinions4u

vikkib21 wrote: »

I was hoping for some advice.

My husband and I are trying to decide whether to extend or move houses. We have been told by our current lender that we would be able to borrow significantly more on a new mortgage that we have currently.

While this may be stating the obvious, it doesn't mean that you have to borrow more.

In January 2008 we re-mortgaged for another 3yrs fixed rate, borrowing money to clear existing debts. We borrowed 80% of our house value.

This probably means that you now owe around 95% of the value of your house, as it has probably dropped. You need to talk with a broker / prospective lender / existing lender to establish their exact lending criteria. In the current climate you could find yourself spending £50k on an extension that adds £35k to the value of your house and a lender only willing to give you an advance of £20k. Proceed with caution!

We are considering significantly extending our house. How would finance work on this? Will banks lend money based on the value of the house after the extension?

Yes. You need to understand how they will fund interim payments to builders too.

I am thinking that the extension will cost between 50K-100k with furnishings.

Lenders may not be prepared to finance the furnishings unless they are fitted and part of the property structure. It is important to clarify this early.

We haven't even applying for planning permission yet, but I would be interesting in knowing our financial options.

I think a mortgage broker may be the best place to start, before incurring planning fees.

You may not find raising the money too easy in the current climate. Not because you are a bad risk, but lending against property in a falling market is a high risk for any lender.