Remortgage for Extension - so confused

iorich

Hello

I bought my first house with my wife two years ago for shy of 87k. There's a huge plot of land next door to double the size of the property and there's a house opposite who did so some years ago.

A call to my bank suggests they won't lend me any more money despite being cleared for a mortgage up for 160k. I currently owe 71.5k and need about 30 to build an extension that will bring the property value to about £130. (going off a couple of recent quotes for the build and a conversation with an old friend estate agent.)

It's a tight proposition but it would give us an awesome family home. If I sold right now, I'd most likely lose money and the place is too small to really be of any use. In hindsight, we probably should have bought a bigger house.

Do I have any options? I'm so confused.

Thrugelmir

You don't have the equity to fund the extension. A mortgage lender is not going to lend you money without security on a speculative basis.

iorich

That's pretty heart wrenching. I'm obviously rather naive with these matters. It's such a shame as we could easily afford the repayments.

Thrugelmir

Overpay your current mortgage and start saving.

iorich

You're probably right. An extension to most people is probably a nice to have. To us in this house, it's the difference between being happy and sad. I guess we will just have to move and make a loss on it now.

kingstreet

The problem is, they won't lend you the money to develop. You could take the money and blow it on the 2.50 at Ascot and they would then have a mortgage bigger than the value of the property.

Too risky.

dimbo61

It will cost you What £10K to move from one property to another ? by the time you count the cost of buying and selling plus all the costs IE surveys, searches, legals, redecorating , removals.
So why not over pay the existing mortgage big style
You say you can afford the bigger mortgage payments so prove it.
Use "whatsthecost" to work out how much a £102k mortgage would cost and pay that amount every month for a year or two

Thrugelmir

iorich wrote: »

You're probably right. An extension to most people is probably a nice to have. To us in this house, it's the difference between being happy and sad. I guess we will just have to move and make a loss on it now.

Building an extension is often a cheaper option than moving house. Although inconvenient. Arguably less stressful.

iorich

dimbo61 wrote: »

Use "whatsthecost" to work out how much a £102k mortgage would cost and pay that amount every month for a year or two

Had a look at the calculator and found out I can overpay by 10% (7k on 71,500 remaining) a year with my current agreement which if my maths is correct if I paid the amount on the calculator, it'd be about 5%. My repayment is 359 a month and I can comfortably repay 659 without any impact.

So if I can't have the home I want, I should clear the mortgage debt, save up?

The bit I'm really confused about and my bank was pretty unhelpful with, was.. what is the amount of equity I need before I can get the cash I need to extend.

I presume this is something to do with the Loan to Value ratio but I'd rather just have a cash figure I can work with.

kingstreet

We can't tell you this. We can only give you an example.

Let's say your lender will allow you to take additional borrowing to take your total mortgage upto 80% of the current value of the property.

If your property is worth £100,000 and your current mortgage is £70,000, you would be able to borrow £10,000 to take you upto 80%, £80,000.

If you need £30,000, you are going to be £20,000 short.

However, if your existing mortgage is only £50,000 you can borrow the £30,000 you need because the total will be within that 80%, or £80,000 ceiling.

As lenders are more flexible when you remortgage, why not consider moving to a new lender? You would repay your current mortgage and borrow the extra money you need and you could borrow a total of 90% of the value of the property. Would that be enough to cover the cost of the work you want to do?