Overpayment to borrow more ?

tc83

I have recently applied to my mortgage lender for extra funds to finance some home improvements (about £20,000 for an extension). After a means test they've said I they cannot lend me any additional money.

The cost of this add-on would have been around £100 p/m on top of my mortgage. I can afford this (even though the lender disagrees) so I was wondering if I were to overpay on my mortgage (which I can do) by £100 a month say over the next 6-12 months then reapplied would they likely lend me the money having seen I can afford the extra amount?

[Deleted User]

No.

Save the £100 a month, plus the rest of your disposable income and reduce the amount you may need to borrow in the future.

Herzlos

No, because that £100 will have already been accounted for whether it's in savings/disposable/elsewhere.

Save the £100/month and put that towards it.

£100/month for a £20,000 loan is 17 years assuming 0% interest, which means you're going to be paying a lot for it.

It could be that the extra £20,000 on your mortgages changes the salary multiplier or LTV value, and they have to stress test mortgage payments assuming a huge (7%?) rate rise. So whilst you can afford to add £100/month to your mortgage, they may be testing if you can still afford it if it added £300/month to your mortgage. This will be more stringent than when you got the mortgage, so the rate rise testing will be on the entire balance and not just the extra £20k.

They could also wonder about affordability if you're wanting to take a £20,000 loan out and only repay £100/month.

For instance, I'm taking out a £13k loan for an extension, and the preferential rate drops away if I try and pay it over more than 5 years (~£220/month).

If that's all you can afford, then do you really need the extension and do you need to spend £20k on it?

ashe

Borrowing on a mortgage is very expensive. Have you considered a loan over 3-5 years or even longer?

I had quotes for car finance and they were ridiculously expensive double digit APRs. I took a loan out for 'home improvements' with a bank and got 6.9% (this is going back 10 years) and saved a fortune over the period of the loan.

over 5 years as a home owner you can expect to pay about £350 a month for 20k. You would save thousands over adding that to the life of your mortgage.

tc83

Yes, I looked into borrowing elsewhere however £350 a month is a lot to pay a month compared to just £100 albeit cheaper in the long run.

ashe

how much equity do you have on the house? it may be that giving you 20k might put you at a very high LTV ratio?

Either way if mortgage is a no go, it seems like a loan would be your only option. Thats over 5 years, there will be longer term loans but again the cost of finance goes up the more you spread it.

AstroTurtle

tc83 wrote: »

I have recently applied to my mortgage lender for extra funds to finance some home improvements (about £20,000 for an extension). After a means test they've said I they cannot lend me any additional money.

The cost of this add-on would have been around £100 p/m on top of my mortgage. I can afford this (even though the lender disagrees) so I was wondering if I were to overpay on my mortgage (which I can do) by £100 a month say over the next 6-12 months then reapplied would they likely lend me the money having seen I can afford the extra amount?

Short answer is no and then you've given them an extra £600-£1200


Overpaying when you feel like It is not the same as risking a default on the whole mortgage debt to the lender.


They have harsher rules than ever now regarding means testing and forecasting.

BrassicWoman

If you can easily afford it, do you have a bank savings statement showing the £100 a month tucked away for say the last year?

If not, you probably can't really afford it.