Mortgage to cover extension work

darrenj1471

First time buyer here so perhaps a dumb question. We are buying a 2 bed flat which comes with ownership of loft space and ability to extend into it adding 2 more rooms (both houses either side have done this).
In its current 2 bed form its pretty much at top of our budget so we will be putting our 20% deposit down and borrowing close to the upper limit we was advised we could and thus buying the flat.


We obviously then have a desire to build the loft extension and make the property bigger and thus worth more money however I can see us having real issues in saving up the significant money required to do this extension.


My question is what are our options here? Can we advise our lender of our plans and perhaps get them to see the added value the work will deliver to the house and lend us more? Help ...:)

Typhoon2000

No that won't work. You could have got a higher LTV product and borrowed more but not if you are close to your borrowing limit already.

marliepanda

You need to save up and pay for it. The mortgage wont. If you can't save up to fund it, you can't afford the additional mortgage funds either.

will it be worth it to extend to four beds? I can't imagine there being a big market for four bed flats, I'd prefer a four bed house for my money (or even a three bed...) .

darrenj1471

Sorry, what is a higher LTV product? We may not be right at the limit once we negotiate final purchase price so are you saying there is some room to borrow our max even if the purchase price falls under that?


I understand we need to put forward 20% of purchase price to ensure we get better mortgage rate so have worked to that assumption. Lets say price is 500k and we have 100k (20%) plus some in reserve and have been told we could borrow up to 430k. Lets say loft is 50k. Could we therefore still borrow the 430k AND ensure we contribute 120k and thus still be putting 20% towards total purchase price?

marliepanda

No. The mortgage is based on current value, not the proposed value.

Typhoon2000

darrenj1471 wrote: »

Sorry, what is a higher LTV product? We may not be right at the limit once we negotiate final purchase price so are you saying there is some room to borrow our max even if the purchase price falls under that?


I understand we need to put forward 20% of purchase price to ensure we get better mortgage rate so have worked to that assumption. Lets say price is 500k and we have 100k (20%) plus some in reserve and have been told we could borrow up to 430k. Lets say loft is 50k. Could we therefore still borrow the 430k AND ensure we contribute 120k and thus still be putting 20% towards total purchase price?

No you 'could' put down £50K and borrow £450k ( 90% LTV) instead of £400k (80% LTV) and have 50k left to do the work. When you remortgage, assuming your improvements have increased the value of the flat, your LTV will be back to 80% or better.

darrenj1471

Ahh I see what you mean Typhoon, ie put forward 10% deposit as opposed to 20% and thus have that money left in our personal funds. Appreciate you cant advise but how much worse are the available mortgage products for someone with 10% deposit vs 20% ? I think I like your idea in principle

n217970

darrenj1471 wrote: »

Ahh I see what you mean Typhoon, ie put forward 10% deposit as opposed to 20% and thus have that money left in our personal funds. Appreciate you cant advise but how much worse are the available mortgage products for someone with 10% deposit vs 20% ? I think I like your idea in principle

Depending on the circumstances/potential you might be able to do it without impacting the rates much in the long term, just don't go for a mortgage with an early repayment charge then remortgage when work is done to take into account added value.

for example - buy at 500k, 50k deposit, 450k mortgage 90% LTV. Spend 50k on extension. Remortgage with the flat valued at 600k requiring a 450k mortgage - just like magic 75% LTV and probably even better rates then at 80% LTV

All this depends on persuading the surveyor that you have added 100k to the value of course.

darrenj1471

Yep I get it now and Im officially a little excited because I have NO doubt that spending the 50k will add 100k so I get the illustration above and its the way Im going to proceed........HOWEVER my mortgage advisor has handled all the calculations on what we can borrow and I don't know if hes only saying we can borrow X amount based on us having a 20% deposit so waiting to hear back.


Is it usual that lenders will loan you more if you put more deposit down and reduce their loan offer if you only have 15% ?

kingstreet

No. Affordability is not normally LTV dependent nowadays. You only see LTI caps on HTB or LTV at 90% to 95%.

Is 4.5 x joint gross annual enough if you were capped?

darrenj1471

I don't know what LTI or HTB mean? 4.5 times our gross annual incomes is enough for us to buy the property with approx. 14% deposit AND leave us enough to do the upgrades. If Im understanding your question correctly?


My only concern was related to the fact I contract and my partner earns commission so wasn't sure if our advisor had had to get us some 'special' mortgage related to deposit %


So I feel we're in a good position... Thanks all