Home improvements - finance options?

thriftypatos

We are looking to do significant work on our home and are thinking carefully about our financing options. Appreciate that this forum is not a substitute for a financial advisor but would be really grateful if anyone can give us some food for thought as we try to plan this big commitment. In summary:

• Bought our house in July 2020 for £800,000. Confident that this was a good price and recent valuations put it between £860,000 and £900,000 today.
• We have approx. £260,000 equity in the property.
• Projected total cost of home improvements (extension, cellar conversion, loft conversion, garage) including architects and planning = £300,000.
• Savings (accessible without penalty) approx. £75,000.
• Joint incomes £240,000. Likely bonuses approx. £30,000 but not guaranteed.
• Main monthly outgoings (dependents and credit) = nursery fees £1,500, car hire £335, otherwise no other credit and only normal household bills.

We anticipate borrowing a further £250,000 towards the £300,000 project cost. Called the bank today to discuss additional borrowing on our mortgage and were told that affordability is not an issue (fortunate with our salaries etc) but max. LTV currently set strictly at 80%, which means we could only borrow an additional c.£130,000 on the mortgage.

Do we:

1. Wait until lending sentiment improves as Covid (fingers crossed) becomes less of a credit risk factor, and hope that the bank's LTV requirements become more favourable? How likely is this to happen, and what sort of timescales?

2. Look at raising the "missing" cash (£120,000) by a combination of personal loans, 0% credit cards for temporary debt, beg/borrow/steal from family?

3. Take the additional £130,000 asap, crack on with construction and then seek additional borrowing from the same bank when the house value has increased (i.e. LTV requirements for further debt met)?

4. Other suggestions? Will other banks potentially be able to offer a second priority mortgage for the project money at sensible rates, or is that always likely to be significantly more expensive than taking additional borrowing on the primary mortgage (presumably so if the second mortgagee becomes subordinate)?

As I say, our issue is not affordability in terms of repayments - that isn't a concern for us - but in the current climate our mortgage bank is not willing to lend the amount we need based on LTV limits.

Does this warrant booking in to see a mortgage advisor, or financial planner? 

Appreciate that is a lot of questions! Many thanks in advance for any ideas / opinions / suggestions.

Thrugelmir

On the basis that major project costs more often over run. I'd suggest building some more equity in the property/increasing your savings first.  Shouldn't take long given your annual household income. 

dimbo61

You have £75,000 already and can borrow another £130,000 so over £200,000 to invest in the property.
Sit down with your architecture and decide what you want/need doing first.
Not sure if the property has increased in value by £60,000/£100,000 in the last 9/10 months.
Any surveyor will look at the property and recent sold prices ! 
He/she will see you paid £XXX,XXX only 10 months ago and also see the photos on Rightmove sold prices so unless you have built an extension or refurbished the property you won't have increased the property by £100,000.

We watch Grand designs but sometimes you can add alot of value to a property by clever use of the existing space and the right extension without spending £350,000

K_S

@thriftypatos Quick thoughts on the mortgage aspects

1. Unlikely. Banks don't change that sort of criteria (max LTV for capital raising) very often. 80% is your current lender's cap, it doesn't mean that other lenders won't go higher.

4. Second charge loans/mortgages may be possible, but at that high LTV it's going to be significantly more expensive than mainstream first-charge mortgages.

Mortgage advisor - if you're tied to your current bank then an advisor is unlikely to be able to offer you any different from what your bank has already said. 

CSL0183

4 x £25k personal loans between the 2 of you over 60 months. 

Extension will be built in 6-12 months. House gets revalued at the new higher valuation and you remortgage to pay the loans off. 

Process is fairly straight forward and very common for lenders to take into consideration. 

Only thing to be wary of is a remortgage to release funds now and then another remortgage to release funds when the project is complete. Find a product with no ERC