Releasing Equity at Remortgage for Extension

timPgoodwin

Hi,

We recently have had planning permission and architectural drawings made for an extension (adding a new orangery/open plan kitchen/conservatory) to our 5 bedroom mortgaged house. Unfortunately these plans weren't in place at our remortgage in February but we are looking to, in Feb 2020 releasing some equity from the mortgage in order to undertake the building works at a cost of around £40-50k.

My question is around the repercussions of taking out money from the home, even if it is to spend back on the home itself which will obviously increase its value.

For background - We bought the property in 2016 for £260k with a £65k deposit (75% LTV) we now have £188k outstanding on the mortgage on a 2-year fixed mortgage over 36 years (1.8%) which will leave us with around £176k outstanding come the next remortgage date of Feb 2020 (we are making regular monthly over-payments).

When we remortgaged in Feb we had a valuation done by an independent estate agent who value the house at £350k but to be safe, on the remortgage, the house was valued at £300k by the Halifax.

We are keen to take equity from the house but want to ask if it's best to use a different source of funding/loan? How will this equity release effect our mortgage interest rate? Will we pay a higher interest on the whole amount owed due to releasing the £40/50k?

Hope you can help.

sal_III

The EA valuation is irrelevant and in almost all cases largely inflated, which is backed up by the Halifax valuation of £300k. When speaking about mortgages the only valuation that matters is the Lender's.

£40-50k additional borrowing will most likely push you in a different LTV bracket, so I would expect this to result in slightly higher rate. This will also affect the affordability as the amount you will be borrowing will be higher than the original (176k+£45k=£211k>£195k), depending on your age you might not be able to get a 36 years term, which will push the monthly repayments even further up.

Without knowing how much your property will be worth in 2020, no one can give you definitive answer by how much.

timPgoodwin

Thanks,

That all makes sense. I think what I need to do is look at how we stay within that 75% LTV by paying off as much of the mortgage as we can in preparation for the remortgage in 2020. Is there a formula or online calculator to work out the maths on this?

My fear is being held to ransom on an interest rate of say 4% that completely kills being able to undertake the building work, I wouldn't want to borrow £40k but have to pay 4% interest on the whole (increased) £210k mortgage - The payments would be too much.

What are the best options? Pay off as much off the mortgage as possible before the end of the 2 year fixed rate we are on? or to look at alternative funding options that may have a lower interest rate?

We are not precious about the duration of the new mortgage. The 36 year term was pushed on to us by Halifax for the 2-year fixed rate we took with them as we were keen to move to a high street bank we accepted, previously we had been with Kensington

Thanks again for the help.

kingstreet

Are you going back to Halifax for a further advance, or are you remortgaging?

If you are asking for a further advance, the rate for your main mortgage and your further advance rate will probably be different.

Have a look at current Halifax further advance rates and product transfer rates to see if there's a difference.

A remortgage to a new lender will see all your mortgage at the same rate and you can choose the best lender/rate for you at the time.

Halifax is a very flexible lender from a broker POV but it rarely tops the "best buy" charts for rates/fees.

timPgoodwin

kingstreet wrote: »

Are you going back to Halifax for a further advance, or are you remortgaging?

If you are asking for a further advance, the rate for your main mortgage and your further advance rate will probably be different.

Have a look at current Halifax further advance rates and product transfer rates to see if there's a difference.

A remortgage to a new lender will see all your mortgage at the same rate and you can choose the best lender/rate for you at the time.

Halifax is a very flexible lender from a broker POV but it rarely tops the "best buy" charts for rates/fees.

No we aren't precious about who we remortgage with, would prefer it to be a high street bank but happy to view the whole of market for the best rates.

We are looking to do the equity release at the remortgage in February 2020, I presume I am using the right terminology in saying 'equity release' but essentially we are 'borrowing more money and increasing what we owe on the mortgage'.

Will look at further advance rates and product transfer fees to see if that makes more sense for us.

Thanks!

kingstreet

Borrowing more money is right. Equity release is a separate product in its own right for the retired.

Check remortgage options with other lenders and compare them with your Halifax product transfer and further advance rate options now and closer to the time needed.

timPgoodwin

kingstreet wrote: »

Borrowing more money is right. Equity release is a separate product in its own right for the retired.

Check remortgage options with other lenders and compare them with your Halifax product transfer and further advance rate options now and closer to the time needed.

Thanks very much, can you offer any advice on which independent site is the best to check through?

kingstreet

No. We pay for and use proprietary software to source mortgage products.

The FCA/Money Advice Service issues Best Buy tables but I'm not sure if they are kept fully updated.

timPgoodwin

Thanks, I will speak to the mortgage adviser we have used the last 2 remortgages and see if she can help us.

Much appreciated.