To be (MF) or not to be (MF)! (Brain dump!)

WestonDave

Not sure I'm looking for answers as much as just dumping some thoughts!

Our outlook has always been to avoid debt and to get rid of the mortgage as soon as possible. We effectively cleared the mortgage on our first house before we moved in 2006, but now have a mortgage again on our current place. This house is seen as our forever house but we have a massive dilemma. We bought it because we love the area (it was 200 yards along the street from our old house - we know at least 4 families in the street who have done the same - started in the smaller ones and then moved along!), and because it has potential but it also has its issues as well. With some work it could be fantastic but the problem we have is that its all interlinked and its hard to see anywhere to start without embarking on a massive project. Because its OK to live in as it is, and we naturally shy away from more debt its also tempting just to stay as we are but there are a few pressing issues that won't stay OK forever.

Its a detached 3 bed house on a corner plot (which restricts the directions in which we can extend!), with garden on all 4 sides. The best garden is on the southside, but a chunk of that is taken up by a garage attached to the house which has a leaking asbestos roof plus a massive flue up the back of the house wall from an old (now removed) boiler in the garage. Aside from the leaking roof the garage is useless as a garage as its too small to get anything other than a supermini car in. We have about 14 feet of hard standing in front of the garage but that is too short to get our car on legally as it hangs over the boundary. (Fortunately that is OK because of a grass strip between the boundary and the pavement - although if the council decide to get stroppy....). The kitchen has old units in that we gave a makeover to with some new B&Q doors, but the carcasses won't last forever. It is also a horrific design with doors in opposite corners with a double door into the dining room in the middle of one wall. It means that all the surfaces are spread around a 12foot square room (not quite big enough for an island!). We also both have ageing parents that we need to keep vaguely in mind.

So the (if we won on the Premium Bonds) dream plan, would be to build a single story extension on the back of the house (east side) where we have a relatively narrow strip of garden (although its at least 16 feet so we could have a 10 foot extension along the 30 foot length). That would give us two more downstairs rooms - one as a sort of study off the lounge so we could keep an eye on the boys doing their homework, using the computer etc (aged 6 and 4 at present so we have a bit of time!). The other room would be a sort of utility room come workshop to replace the current garage (which would be demolished freeing up the south garden). In between we should have room for a wetroom or shower room. These rooms could also double as a "granny annexe" if we ever ended up having to house one lone parent.

Clearing the garage would not only improve the back garden, but also clear the way to move the back door in the kitchen to improve the kitchen space by the time we come to refit it. We would then move the car standing to the north garden which is currently scraggy grass that gets most of its use while I'm running the lawnmower over it.

Trouble is - we can't get rid of the garage without building the extension as we'd have no where to store bikes (the shed is full of lawnmowers and other tools!). We can't sort the kitchen layout without doing some serious work on the garage (pointless if we later demolish it!) or demolishing it. We don't really want to move the driveway if we are then going to have contractors running mini diggers over it to do an extension. Various fences and the shed are on their last legs so will need replacing, but not necessarily in the same places if we do the extension!

To do the lot we are probably talking somewhere £60k upwards. House value is stable - house over the road has just sold in poor condition for a price which suggests we'd easily get our original 2006 price back if we sold it now. (same layout but slightly bigger so 4 beds, in need of total refurb, new electrics, new heating, new kitchen etc went for around £100k more than our 2006 price!)

Current mortgage is 38% of that 2006 value, if we chucked every penny we have in savings into it we'd get it down to 19%. Current mortgage level is 2.3 times my salary. Remortgaging to 3 times my salary would release about half of what we need so we'd need to chuck a lot of the savings into this as well. Assuming it cost £60k we'd end up all in at 36% of its 2006 value (but presumably there would be some increase in value with the extra rooms). The key to unlocking all of this would be the extension - doing it enables all the other projects, not doing it means a lot of compromises or potentially additional costs from doing things that will be undone or damaged. I guess the extension alone would probably be around £40kish.

So I guess we are wrestling (in the current climate as well) with whether we get on with it now or whether we just keep treading water for another couple of years. To be fair even if we said today, lets go for it, it would take probably 6 months before we'd have planning permission and be ready to have contractors starting on site during which time we could put things on hold. My MF self says don't do it, but another part of me wants to just get on with it so its all done and we can get on with living rather than edging round projects we know will need doing eventually. We're at the stage of getting some quotes from contacts to get some ball park figures but we still keep wrestling with the do it or don't do it question. Sensible MF ethos views welcome!

ETA - ouch that got long - sorry!

debtdesperado

Very interesting, WestonDave! So it sounds as if you're weighing up overpaying the mortgage on a house which needs lots of work v increasing the mortgage and making it your dream house....

My first question is how stable is your household income? Things are going to be tough and unpredictable for everyone over the next few years/decade. Is whatever you and your wife do in an industry which will stay profitable?

My second question is have you got a properly funded emergency fund eg 6 months (or more) of all household expenses in a savings account somewhere?

I say first that I am fairly cautious (spent 7 months out of work in 2009, and income has been precarious until this year), and it was then that I realised that not having huge mortgage payments and living expenses, plus a big fat emergency fund were the best things to have.

If I was in your position, and I was reasonably confident that the household income wasn't going to change, I would work out which bits of the work needed to be done in stage one - it sounds as if that would be get planning permission, demolish garage and build extension, and probably to refit the kitchen.

Work out which can be left a bit longer - sounds as if this would be the fences, garden, and possibly refitting the kitchen (depending on how liveable it would be after sorting out the extension).

Ring fence the 6 month emergency fund in cash - do not use it. What you have to remember is that if you lost your job, if you couldn't get another one quickly you can't risk your family losing their home. Take that amount out of the equation.

If your employment is secure, and you have emergency savings, then I would do stage one of the works by extending the mortgage. Anything that can be left longer (eg fences) can be saved up for, and paid as and when you have the money, rather than added to the mortgage.

If your employment isn't secure, or you don't have any savings, I wouldn't do any work.

Hope that is useful!

WestonDave

Useful checklist there - thanks!

6 months savings - check. Currently have around 16 months take home in an ISA. Taking the mortgage up to 3 times salary and using other offset savings would leave the ISA untouched, and free around £50k to do a phase 1. At 3 times salary the mortgage would still be less than 50% of the old house value. So on that front seems sound. Still have the MFW in me nagging tho!

Job - moved 6 months ago and am in a position to know the company is sound - profitable and well financed. Need to see out the next 6 months for employment rights purposes although that is rather academic given my role - couldn't be made redundant unless we merged and even then unlikely. Wife earns enough to use most of her tax free allowance working from home at minimum wage. Convenience of that suits us but with both kids in school she could go looking for something better paid if we needed her to.

Phasing - Kitchen at a push could last another 5 years and we aren't that house proud that we need to change it for appearances sake. So we could clear the garage and build the extension without having to do much else until funds recovered. It would be nice to do the car parking at the same time but that could initially just be levelled compacted hardcore (£500?) with a view to maybe block paving it later.

Big question really is waiting on our builder friend as to how much the extension might cost as that will show how deep we'd need to dig. Financial position is improving without much effort by around £500 per month so by the time we actually got around to paying for it in say a years time we'd be £6k nearer to closing the gap again.

Sepa74

If the only thing stopping you demolishing the garage is bike storage, I would invest (and yes, it is an investment if it frees up your brain to develop a workable plan) in a couple of fairly cheap and cheerful bike stores that you can put on the north side of your house.

Otherwise, I would do it, particularly as this is your forever house. The only reason to be MF is to be able to live the life you want to live, and it sounds like you REALLY want this. It's silly to become MF and then take out another loan to do the improvements you want in 5 or 10 years time, when you can increase your mortgage now and enjoy the improvements now.

MF is not an end in and of itself.