New house / renovations (Mortgage related question)

mwcraddock

Hi all,
Not posted much on here but I could really do with your advice!
We have just got an offer accepted on a property we're really happy with. It requires a bit of work to get it looking modern and we are really keen to unlock money from our equity to add a kitchen/diner extension. We see it as a good investment to get the property up to a good standard.

The house price is £342,000 and we are looking to put down 85% mortgage to unlock a bit of cash to do the work.

However, we're concerned that the extension is taking on too much too soon. We still need to modernise the rest of the property.

From people's experience, if we modernised the property (new fireplace, bathroom, add a utility room, recarpet, removed old wallpapers etc), would we expect to see this repaid in our house value in 2 years time? We're not sure whether to do a 2 year fixed mortgage, do the minimal amount of work and then revalue, take out more money to do the extension then.

All personal choices, but interested to know if people have experience doing this? Is advancing on the mortgage also worthwhile doing? All these decisions are stressing us out a bit.

Cheers

K_S

@mwcraddock Based on my experience of clients who have borrowed for improvements, the work described above is unlikely to result in a value increase of the amount spent. The kind of improvements that add noticeable value are those which increase floor space, add new rooms, etc.

Not sure what you mean by "advancing on the mortgage"?

mwcraddock

Apologies, I just mean additional borrowing. Judging from estimates I've seen online, we're slightly short of being able to afford the extension we're after if we go to a 85% LTV mortgage. We want to make sure we do a good job of it too.

Essentially, we're between two decisions. Either, push our monthly payments to the max and attempt to build the extension. Or take out a smaller amount to spend on more cosmetic improvements with the risk it wouldn't add value when we have to remortgage in 2 years.

K_S

@mwcraddock In your place, based on the limited info in your post, I would be leaning towards a smaller mortgage (lower payments, lower LTV if at all possible), take out a short fix, use the smaller amount released to do whats necessary and then reassess in a few years. 

You want to avoid a situation where you're at your affordability limit, on a high-LTV mortgage (no further room for additional borrowing) with work half done because you don't have the necessary funds and can't remortgage with capital raise due to LTV limits.