Funding an extension?

kmmr

I launched into an extension a few years ago, with similar problems. I would warn you that my estimate of the work was £70k, and it turned out to be closer to £110, so depending how tight your budget is you need to be careful on overruns.

How I did it? Messily.

I applied for an equity release on the value of the developed property. They agreed £50k, but only after the work was done. So I started. I had £35k or so in the bank, I had about £15k available on my main credit card. I agreed with my builder that he could use my card for buying materials for me - good thing he was trustworthy! He used up the full credit card, and then I used another credit card to run up about £5k of debt.

The £35k went out the door over time as well. Then I got a personal loan for £25k. Over the 6 months this was going on I saved up/paid out another £15k or so from salary (which was high, but not 6 figures, so should be possible).

So, how much is that? Not quite enough, so I ended up at the Bank of Mum and Dad for a short term loan. As we got closer to the end of the build, the kitchen went in, and the bank agreed to release the funds. At that stage the original request had lapsed, so I applied again for £75k, and got it.

I paid of the most expensive CCard debts, some of the personal loan, and some of my parents money - and took a relaxed breath for the first time in 6 months.

So, in short - skrimp, save, use the credit you can, keep all the balls in the air.... or wait and save it all up!

jjlandlord

sinbad182 wrote: »

I dont think they get paid 50k each in one lump sum hot shot, so unless they want to build it over a period of years thats not a great suggestion is it?

Well if people on a 100k pa income with no children, and with a cheap house/small mortgage (relative to combined income) don't have savings, who has?

wolfwiser

I never thought of the buying 'building supplies' with a credit card, information like that, albeit potentially a little risky is all worth considering, so thanks!

Regarding savings, as I mentioned there are some, however you may note for us both to have houses there have been personal situations in the past where we had been living separately financing a house each, thus we havent had loads of time to save up too.

I do realise that saving up would be ideal, but although there is bound to be some degree of cost I would like to explore all possibilities of saving this time, and getting the money up front.

Again, thanks.

kmmr

wolfwiser wrote: »

I never thought of the buying 'building supplies' with a credit card, information like that, albeit potentially a little risky is all worth considering, so thanks!

It's only really worth doing if you know it is short term. I knew I had the mortgage advance coming at the end, otherwise I would have spent a fortune (and still would be) on interest costs.

BobQ

wolfwiser wrote: »

My partner and I want to add a ~£50k extension to 'my' house, ..........on a £220k valued house, (the house would post extension be worth upwards of £290k) !

I would want more evidence that spending this expenditure would add this value to the property. I would also want more than one builders estimate of the cost of doing this work.

wolfwiser

BobQ, yes you are correct, however its a bit of a chicken and egg thing - I cannot get a firm quote on the work until I have had the drawings done, and I dont want to spend potentially wasted money on drawings if the finance side isn't sorted or achievable. The value added is largely irrelevant as it is the space that the extension would create that is of the real value to us. Other options of a smaller extension wouldn't be as cost effective (i.e. a second story is cheaper per m2 than the ground floor, as foundations, moving of drains etc are required for both options, yet this work isnt required for a second story). The value is really hypothetical for future remortgage valuations - basically we wouldn't just be spending the money, it would add value (whether it is 80% of the cost or 120% of the cost) to some degree, which essentially is adding equity, and reducing future loan to value amounts.

ScotlandM

Yes your extension really should add some value to the house and so equity but your idea it could be 120% seems naive to me. You'll pay a whack of tax (20% vat) which can't add any value and you'll pay the builder a wage which again is a large % of the total cost for no value.
Also sounds like you are adding a second story on part/all house. The roof will have to be lifted/raised and replaced that act is clearly necessary and doesn't add any equity. Your house has a roof, your house will have a roof so no added value but it'll cost to move the roof 2m upwards

Your 220 valuation, is it current? or is your house actually worth 265 and the 50k extension adds only 25 value.

I appreciate the conclusion to this could be save up and wait, any savings have been involved in the calulation leaving a £50k shortfall on the potential build.

So is the total cost of the extension more than 50k?

You've asked about remortgaging at the end of the extension, you're lender is the first one to talk to. You won't get the drawings done for anyone to review though. What is the relationship with the builder?

jjlandlord

ScotlandM wrote: »

You'll pay a whack of tax (20% vat) which can't add any value and you'll pay the builder a wage which again is a large % of the total cost for no value.

Not sure I follow.

Obviously the value of the extension would be whatever extra someone is willing to pay for it should the house be sold.

If no-one's interested in paying extra for the house, obviously the value is actually 0.

But if someone's interested in an extension, they may reasonably assess how much they are willing to pay for it based on how much it would cost them to build it, and that cost (and hence a reasonable basis for valuation) would include VAT and wages.

cb4fwh

I broke the foundations of my extension (side & rear) in 2008, with the promise of £80k from Santander (or A&L as they were at the time). Then the credit crunch arrived and the offer was rescinded! However, they did say that they would be willing to loan if I managed to commence works & prove that what I had done had added value to the house.

So I pushed on & in the end had circa £30k on 0% credit cards, which I had used to fund the extension. Builders were paid from my disposable income. Doing it this way allowed me to invite A&L back, and borrow £30k to finish the extension (plumbing, plastering, decorating, bathrooms, floors, insulation etc.)

I then slowly paid off the credit cards from my disposable income over circa 3 years, making sure that I shifted between 0% credit cards in order that I wasn't incurring interest (although I did incur relatively small balance transfer fees (probably £200).

I now have an extension which cost £60k, but has added closer to £85-90k value to the house, and only an additional circa £27k outstanding on mortgage.

Worked for me, but ultimately depends on how risk averse you are, how much you could borrow on 0% cards, and how much disposable income you have.

wolfwiser

To clarify I'm thinking on the same lines as the above poster, cb4fwh. The extension will cost say £60k, £50k of which is required through re-financing. The house is currently worth £220k, the house with the extension would be worth £290k, having spent £60k to achieve this - therefore in theory £10k gained in equity. To re-itterate this is not in order to sell the house, but make the space suit our needs, the valuation would be for future re-mortgage options and is based on 'under offer' and 'for sale' properties similar to mine which have had this type of extension completed.

I have spoken to my current lender already and they are willing to lend further on the current deal, but only to 80% loan to value which would approximately be releasing £20k, which isn't enough.

This relates back to the original question, which is the best way to achieve the required £50k? So it could be obtain this £25k from my current lender, and look at alternatives for the balance (credit cards, personal loans etc) or change lender to one who would offer 90% loan to value and get 'stung' by the arrangement fees, valuation fees and interest rate - only to remortgage back to 80% loan to value or better when the work is completed/future date, complete with valuation fees etc etc etc.

The 0% credit card hadn't really crossed my mind, but I can see peoples reasoning, however this does seem a little risky, and although I (think!) I have a decent credit rating, not sure if I would want to apply for (several?) credit cards with large limits, in case I got refused which I guess would damage my credit rating.

cb4fwh - how did you do this, on how many cards, and were you afforded a LARGE limit?

So it is a case of large sum for relatively short term (any if anyone says pay-day loans I'm off!!)