Loan for home improvements and extension

NoAngel

We have lived in our home for 3 years and bought it with a 95% mortgage. When we remortgaged a few months ago, it was done without a proper valuation due to covid so is still a 90% LTV (so I doubt we could borrow more on the existing mortgage).  I think (from estate agent valuations) that we would have actually dropped to 85% with a proper valuation.
 We had always planned to extend and do some improvements and have just had planning permission. The work will cost £65k and we have £35k saved. What do you think would be the best way to finance the remainder ? We each earn 40k PA and have cars in finance (mine is PCP at £230pm and DHs is a loan at £200pm).  Other than the mortgage we have no other debts. At the moment we are able to save £1200 per month so it should give an idea of how much we could repay each month. Thank you.

DrEskimo

How much interest is the PCP and personal loan for the cars costing you? Seems odd to have £35k savings, but then potentially paying thousands to borrow money for cars?

It doesn't sound like you can borrow more on the mortgage so either keep saving or look at 0% credit cards or low rate personal loans. You have already committed yourself to the two car purchases though, so may have to wait for the house work...don't fall into the trap of just constantly borrowing for things. I'm sure if you borrow for this work, something else will come up before it's been fully repaid (not to mention what you will do for a car at the end of the PCP...) and the debt will grow.

NoAngel

A chunk of the savings came from a gift which came after the cars were bought. Once the PCP is up, I plan to salary sacrifice at work for one as I have just stopped paying for a £243 childcare voucher from my wage. Have preferred having a newer car as it has been more reliable than my old one that frequently needed work.

Do you have any advice about low rate loans at all? Never had one but it looks as though interest rates increase with the amount you borrow and you have to fully apply before knowing what interest rate you would be offered?

Ebe_Scrooge

NoAngel said:

Do you have any advice about low rate loans at all? Never had one but it looks as though interest rates increase with the amount you borrow and you have to fully apply before knowing what interest rate you would be offered?

As a broad rule of thumb you'll be offered a lower APR for a larger loan, within limits - though of course, you'll end up paying more interest overall, the more you borrow.  And yes, you won't know what actual rate you can get until you apply.  Lenders advertise a "representative APR", but they only have to offer that to 51% of successful applicants.  The actual rate they'll offer you will be determined once they've searched your credit file and crunched the numbers through their systems.  You'll get a lower APR on a secured loan vs an unsecured one - but you do have to understand the implications of not keeping up with repayments on a loan secured against your house.  That's precisely why a secured loan is cheaper - the lender can, in the worst case, easily get their money back by repossessing your house.

Also bear in mind that the maximum unsecured loan you'll be able to get is - USUALLY - around £25k.  Some lenders will offer more, but that's kind of the generally-accepted rule of thumb.

Assuming you use your savings to finance part of the works, £30k is still a not-insignificant loan, even with the relatively high income you've got.  Is it possible to split the work up so you can do some of it piecemeal and save up in between stages, meaning you need to borrow less?

fatbelly

Maybe play with this

https://www.moneysavingexpert.com/eligibility/loans-calculator/search/

NoAngel

@Ebe_Scrooge thanks for then info. Yes, we could certainly split the work up as it is across 3 rooms so we can do one at a time. DH knows the builder (he knew all 5 we got quotes from) and has managed to arrange to do some of the labouring at the start which will take a bit more off. 

Nebulous2

In your position I would go the personal loan route. Best rates are generally on loans of £7500 - £15000. It might be best splitting what you need in two and applying for one each. Equally rates can drift up a bit with longer time periods - 3 years might be better than 5. 

The risk of of course with two loans is that you might get a good one and then a less favourable one, or a decline. 

Sometimes a lenders own eligibility checker will be more accurate than than a more generic one. 

NoAngel

Thanks for all your help, we've had lots of conversations about this. I wonder whether anyone cam answer another question please. If applying for a loan, we want to be sure we can get it before starting the work but don't actually want the money yet. Is that a usual thing to request from a lender?

jonesMUFCforever

NoAngel said:

Thanks for all your help, we've had lots of conversations about this. I wonder whether anyone cam answer another question please. If applying for a loan, we want to be sure we can get it before starting the work but don't actually want the money yet. Is that a usual thing to request from a lender?

Most lenders that I know will expect you to 'drawdown' the loan monies within one month of applying (and being accepted).
If you do not - the application might be wiped and you would have to start again.
What I have written applies to personal loans not mortgages.