Lease extension - remortgage or loan

luckylucinda123

Hi all, 
I was hoping you may be able to offer some advice. I am looking to extend the lease on my flat which is likely to cost around £16,000 including all fees. I have some savings, but can't cover the total cost without a loan of some sort (and I am reluctant to spend any of my rainy day fund given current climate). I am considering "increasing" the loan value of my mortgage but hadn't realised it would mean remortgaging and starting the two year fixed period again (please correct me if this assumption is wrong [I would like to retain the comfort of a fixed rate mortgage]). The MSE advise on lease extensions recommends extending the mortgage, rather than taking out a loan, but it's not clear what the reason is for this, as from my calculation, a personal loan would be the most cost effective option:
Personal loan - 2.9% APR over 4 year term > total repayment £15,893. Monthly cost of £330, affordable at present, however would impact ability to save any further 
Mortgage - at new mortgage value of 2.02%* APR  over 23 year term > total repayment £18,730.  Mostly cost of £65, no impact on monthly budget
*Currently mortgage rate of 1.99% fixed until 1st Jan 2021, concerned that there may be exist fee for ending this current mortgage, and also that by extending I will incur a fee that I might not have as may possibly be selling the flat in the next couple of years. 
Any further guidance on why MSE recommended to extend the mortgage rather than take a loan or any other considerations would be greatly appreciated. 
Confused of Chelmsford! 

DrEskimo

Have you been offered 2.9% for a £16,000 loan, or is this just what you hope to get?

Depending on your income, debt levels and credit history you may be offered a loan at a much higher rate. 

You will most certainly have exit fees on your current mortgage, and yes remortgaging to borrow more would need a new mortgage product. You could see if you could get another mortgage for the additional borrowing. Its not uncommon and is what we did when we moved house whilst in a fixed term product. It did mean having to remortgage the two separate 'sub-parts', where both incurred fees. I ended up leaving one to run on the SVR for 6months so I could remortgage the whole thing under one product again. Currently on a discount tracker, as we were looking to move last year and wanted a product with no exit fees. Turned out to work in our favour with the current interest rate drops. Now on 0.79%...

Thrugelmir

With regards to the mortgage option. You have the personal choice of overpaying available. Thereby greatly reducing the interest charges levied. 
You can have more than one loan under your mortgage. No requirement to redeem the existing one. Just add an other product. 

luckylucinda123

DrEskimo said:

Have you been offered 2.9% for a £16,000 loan, or is this just what you hope to get?

Depending on your income, debt levels and credit history you may be offered a loan at a much higher rate. 

You will most certainly have exit fees on your current mortgage, and yes remortgaging to borrow more would need a new mortgage product. You could see if you could get another mortgage for the additional borrowing. Its not uncommon and is what we did when we moved house whilst in a fixed term product. It did mean having to remortgage the two separate 'sub-parts', where both incurred fees. I ended up leaving one to run on the SVR for 6months so I could remortgage the whole thing under one product again. Currently on a discount tracker, as we were looking to move last year and wanted a product with no exit fees. Turned out to work in our favour with the current interest rate drops. Now on 0.79%...

Great, that makes sense thank you. I will look into another mortgage for the additional value. Thank you for your help  

luckylucinda123

Thrugelmir said:

With regards to the mortgage option. You have the personal choice of overpaying available. Thereby greatly reducing the interest charges levied. 
You can have more than one loan under your mortgage. No requirement to redeem the existing one. Just add an other product. 

Thank you, that's a really good suggestion. I am looking into a second mortgage for the additional amount, without any early repayment charges. I hadn't thought of that, so thank you very much  

jones_guitar

More importantly have you negotiated with freeholder? Are you sure that figure is correct? Forget what you have been told my other flat owners...

jones_guitar

Why on the mortgage, becuase that way it is all attached to the home. If you get in any trouble, you could sale the home in its entirety and clear the mortgage, it is tidy. With a loan, you could sell the property and still end up with a loan years later. I kind of have this now. What would you do if house prices went down like in 2007 or worse?

luckylucinda123

cjonesguitar said:

More importantly have you negotiated with freeholder? Are you sure that figure is correct? Forget what you have been told my other flat owners...

Hi, I haven't contacted the freeholder yet and was going to go straight to the statutory route. The online calculators seem to indicate that the expected cost would be £11-12,000, and I've taken an average of the quotes I've had for my legal costs, valuation, freeholders costs and land registry fees to get that figure. It's just an estimate at the moment, but even at that figure I know I can't finance it on my savings. Good point about the house value, I hadn't considered that. 

Migster

It's always worth approaching the freeholder informally first, to see if they will suggest an amount they are willing to accept. There's no real incentive for them to do this (mine certainly didn't when I extended a few years back) but you never know your luck. 

jones_guitar

I'd get a solicitor to write to the freeholder. Last year someone told me a lease was about 10k for their flat. I had to break the news that it was near 30k. They were speaking to people who renewed 10-15 years ago.

Ok the opposite end. I was quoted 20k to renew another lease. A couple of years earlier someone renewed for 500pounds. The freeholder didn't care about money soo much and passed away since. His son took over and had a different view.

jones_guitar

I'll tell you something else as well. I do not thank you are acturally meant to rent out a property without informing your freeholder. But everyone does.

If I renew a lease, I would also get them to agree to consent to let for the term of the lease.