Extend or save?

joannajmiller

Looking for some advice while we go round and round in circles... bit of info
38 and 39, married with a 3 and 7 year old and no more planned (for sure)
One of us works part time 3 says earning 42k pa and the other earns 28k - both gross but after having been pro rata’d. Both work in private sector (so uncertain!) No prospect of any big increases in pay, we aren’t really career driven types any more. 
We generally manage to save a decent sum each month (standard 5 percent contributions with 3 percent from employers into pension plus anything from £300-£600 into general savings depending on how active we have been that month)
We have 75k in cash savings, readily accessible
100k combined in personal pensions
We have a house worth 375k, a 3 bed semi with 100k outstanding on a 1.5% mortgage (4 years left on fix) over 11 years - we overpay £100 a month.

Here’s the dilemma... We are keen to extend (moving not an option as we like where we live and nothing comes close in terms of what else is on market). We feel like we need more space downstairs (extend to add utility to free up living space and create larger kitchen) Plus then I really want an office space and larger bedroom for the youngest (loft conversion) The house is currently in need of some decorative renovation at the least, even if we do nothing. 

However, the difficulty we are having is that in spite of how much we would love to make the upgrades, we are both struggling with the notion of increasing our mortgage monthly amount and/or term In order to make it happen. We could use some savings and husband thinks we have too much that is not invested (he is right on the latter) but I am worried about having a safety net in case one or both of us got put out of work.

We could continue as we are and just upgrade decoratively what we have without building, but we are both loathe to spend money on a new kitchen for example,  only to decide on a few years that we do in fact need more space after all. There is some question over whether the investment would reflect fully in the house value given that houses in our road are already generally highly valued compared to others in the local area. 

We have one bathroom and one living space and I keep reading about how people really felt they needed more space as their kids became teenagers? But then my husband and I both grew up in houses the same size or smaller than ours and we both survived...!

We are both keen on the idea of being able to retire early but know realistically that might not be an option.

We are totally stuck between what we think would make life easier now vs longer term retirement planning and the two options seem to be a total dichotomy.

Equally I wonder if our risk adverse attitude is really unambiguous?! Everyone around us seems to be extending or upgrading (or has done) Will we look back and wish we had stretched ourselves?

Was hoping for some external views and thinking.

AnotherJoe

The only thing I'd say is, make your decision soon. That gives you the longest time to benefit from the money you spend and also means that even if you don't fully get the money back in house price appreciation it will be less noticeable / you'll have had the value of it spread over more years. For example say you spend £100k and the house only goes up £50k as a result. If you are in the house for ten years that's £5k a year, £100 a week for all that space. In it for twenty years, only £50 a week. Etc. 

Can you extend in phases so as to minimise any financial risk? A second bathroom would be mine and a future buyers priority I think. 

Stubod

If you are not investing then chances are you are already "losing" money due to inflation anyway, in which case it may be worth considering the extension from savings if it's really what you want. As above, the sooner it is done, the longer you will benefit from it.

Just make sure you keep enough back for an emergency/redundancy fund. Only you can really decide on your longer term job security and actual needs.....happy decision making..

thegentleway

What the £75k savings for? If it's just a safety net then it seems excessive. Normally keep 3-6 months living expenses as emergency fund (e.g. in case you lose your job). You could go for up to 12 months if you think you would really struggle to find another job.

DiggerUK

Given that you appreciate  we're  in worrying times I suggest the following,

Clear the mortgage, that will make the roof over your head bombproof, especially as you have children.

Because the world is as it is, never as you want it, save for the extension after clearing mortgage. That way you are not over committing and putting yourself in harms way.

Keep in mind that if you become unemployed you don't get all benefits if household savings are between 6 and over 16 thousand pounds.

Keep calm, carry on, best of fortune..._

Zorillo

If they clear the mortgage and then save for an extension, the need for the extension may resolve itself as the now grown up children move out...

I'm in a similar position. We have four bedrooms but three younger children and we need more space upstairs and downstairs so we will be borrowing to fund an extension once we are through the current new baby stage.

Extending the mortgage does not worry me any more than having the mortgage in the first place did.

MaxiRobriguez

You earn £70k combined so spending £150k which is probably going to be far more than you actually need is "only" 2x your annual salary, not to mention the savings you already have. With a bit more focus on efficient money retention - more money into pension to avoid tax for example - you'll probably find you'd be able to pay that off faster than you realise.

I don't think the question is a question of should, it's a question of need. If you need the space - do it, because you can afford it. If you don't need it, start being more aggressive with investing.

Sailtheworld

If it's a house you want to stay in (sounds like it is) then go for it. The sooner you do it the lower the cost per year of occupation and the sooner you start to appreciate the utility value you've added.

It's generally been a fool's errand to be cautious when it comes to debt over the last decade or so. It'll probably be the same over the next decade - as long as you can service the debt.

Albermarle

On the financial side your pension provision is a bit weak. Only 8% going in at age 40 is on the lower side . Also do you know how your workplace and personal pensions are invested ? With a long way to go to retirement they should be invested at least fairly aggressively.
From a house improvement point of view , loft conversions are expensive but do normally add solid value . 
However it is not always appreciated that some roof shapes/styles allow more space to be created than others, even in what otherwise seem similar houses. A gable roof is better than a hipped roof ( google it ) and an older roof is easier than a newer roof as far as I know .

LHW99

Agree with Sail the World - go for it.

IMO 100k outstanding mortgage is moderate for your income, we maintained that a little while back for around 10 years with a combined income of less than 30K, at a mortgage rate approaching 4.5% (2 kids at home).

JamesRobinson48

With such young kids it sounds to me like there's probably no hurry to commit to an extension, although doubtless you'd need one in (say) five years time. Personally I would wait; assess once again nearer the time in the light of any changed circumstances; and meanwhile aim to pay down the mortgage while retaining a modest buffer of cash savings.