Want to build extension, not enough equity

doublehard1

Hi,

I bought my house 3 years ago and I think i've got about £15k equity in the property. I'd like to borrow some money build an extension to my house, I estimate it will cost in the region of £35,000 to complete. I've got about £8,000 in savings but I'm going to use that money to modernise my central heating, and get my plans sorted, which will pretty much clear me out.
Does anyone know what options I have? I've spoken to my mortgage provider (halifax) and they are looking into me paying for a valuation based on the plans I've got from my architect. They will give me a decision on Monday but to be honest they didn't sound very keen.
This work should add about £50k to my house value, so upon completion I'll have more than enough equity to cover it (I'd have about £30,000 equity following paying for the extension).
Myself and my wife have no other debts, credit cards etc, only the mortgage. We were looking for some kind of bridging loan (only paying the interest until completion then using a mortgage to cover it), but the Halifax don't/wont do that.
I thought it would be a lot easier than this as we both earn good wages and have good credit history.
Any ideas?

Thanks

UK007BullDog

What are your wages, gross, and what is your mortgage and the house value (conservatively)?

doublehard1

I earn £34,500 and my wife earns £23,000. My mortgage is £125,000 and the house is worth £140,000 (the bank estimates £150,000 but I think realisticly £140,000). The mortgage is the only debt we have.

UK007BullDog

Income wise not a problem at all, but equity wise. Go and find a broker they will be able to help you.

I would get an unsecured loan from a high street bank. Then when you have finished building get a survey done and then get a new mortgage which includes the loan with the old mortgage.

Dont get a secured loan as advertised on TV. Get a personal loan which has no penalties for paying it off early and is not secured onto your property.

And then get a mortgage you can overpay to reduce the debt as quickly as possible.

MortgageMamma

Hi

You don't have the equity at present and thats the issue. What I would do is get a secured loan with either no, or very small early repayment charges. there are providers that do that. Take the secured loan over a very long period so that your monthly payments are really low, and then once you have done the work have your property revalued by a couple of estate agents and remortgage to pay off the secured loan.

The reason I suggest a secured loan is because I think its highly unlikely a bank will give you an unsecured loan for 35k.

MM

doublehard1

Thanks for the advice.

I thought I wouldn't be able to get a secured loan as I won't have the equity to cover it? I thought you could only borrow against your house if you owned enough? Or have I got that wrong.

MortgageMamma

you can get a secured loan over 100% of the value of your property but not all secured lenders do that. please please please take some professional advice on this and don't go to any of the companies that advertise on tv - they mostly have big charges, high rates and large penalties for leaving - a good mortgage broker can advise on secured loans as well

UK007BullDog

Yes that is correct as the equity is not there, but you and your wife could each get an unsecured loan for the amount you need as you have no other debts as you told us. So each of you could ask for £15K or even some more to get the amount you need.

Some secured loans have some nasty surprises of very high early repayment fees. hence my suggestion of unsecured loans which you can get max £25,000. So you might get more than the £35K you need.

Then remortgage.

Why do you need the extension? Kids? Elderly relative?
Selling and buying a bigger property might also be an option.

MortgageMamma

You also have to take into account that normal unsecured loans CAN also have early repayment penalties and u almost always have to repay back more than you borrowed no matter when you do it. You could try for the unsecured but as soon as you do and say its for home improvements the banks will try and make you secure it in my opinion.

If you do take unsecured do make sure you check out the calculations for the early repayment of the loan, just like secured loans unsecured loans can be full of suprises too

doublehard1

Thanks very much both of you. I'll look into both options. I did think about moving but was put off by the money you loose in moving (fee's etc) and the fact that houses in my area are a rip off. With my job I need a room to do my paperwork, which turns our 3 bedroom house into a 2, my missus has already started hinting about us 'breeding'. If I can raise the money to get it built it should be a good investment.
Don't worry about the 'TV' advertised loan companies, I would sooner not build the extension then turn to them, I can't believe the rates they charge. I'll keep my fingers crossed that on Monday the Halifax ring me back and say they will lend against my plans, if not I'll look into what loans are available. I think the sticking point would be the early repayment fees, I'll just have to do lots of research.
Thanks again.

phlash

Save first, buy later. The new old paradigm.

Just a little research may reveal that now is not a good time to be doing this. That new extension may only add £20,000 to the 'value' of the house by the time its completed. Don't believe me? Do some research into state of economy, future borrowing, credit crunch news, lastly (heres a big hint) house builder's share prices.

Debt is real, equity is an estimation. You have control over your debt levels, and none over your equity. Your debt could be at its cheapest for years, and your equity at its highest.

Just think carefully about your decision, is all I'm saying, consider everything, however 'ridiculous'. Or just look at mortgage approvals, and you will find your answer.