Remortgaging for home improvements

audioblackout

We already have a mortgage with Halifax for £100,000 on a house that's now worth £190,000. It's a fixed rate that comes to a close in December.

We recently had our extention application approved and want to borrow an additional £60,000 for the building work. Do we have to remortgage with our existing mortgage lender (Halifax) or can we shop around for deals elsewhere?

Many thanks for any help on this!!!

minimike2

If you move to another lender before the fixed deal ends you will pay an early repayment charge. Are you borrowing the extra on a deal with no tie-ins? If so that will leave you free to look for a new deal for the full amount once the fixed rate ends without paying an ERC

audioblackout

ok i will weigh up how much erc i will have to pay to look for a completely new deal for the whole amount. but surely the amount will then be 100,000 + 60,000 = £160,000. Do you think someone is going to give me a mortgage for £160,000 with a salary of £25,000 in the present credit crunch (even though my home has gone up in value £70,000 since i bought it ???).

i suppose the other question is, if i stay on the fixed deal with halifax until december, can i get this £60,000 from elsewhere or will I need to stick with halifax (i'd get it as a second mortgage with them)???

audioblackout

oh, here's some extra info if there's anyone else out there who thinks they can help me on this!

MY INCOME: £25,000

BOUGHT HOUSE (2003) FOR £125,000. PUT DOWN £25,000 DEPOSIT.
TOOK OUT £100,000 MORTGAGE - DEAL ENDS DECEMBER 2008 (IN 9 MONTHS)

HOUSE NOW WORTH £190,000. BUILDING COST FOR EXTENSION ESTIMATED AT £60,000.

REALLY WANT TO GET EXTENSION UNDERWAY ASAP IF POSS!

minimike2

Is the mortgage just in your name?

If so then dont do a £60k extension (seems a lot of money for an extension anyway, you could build half a house for that). You will be borrowing 6.4x your salary. Thats crazy money. Im sure you can do without it. Just ask yourself if its something you really need to do.

I would suggest your current mortgage is about the limit of what you should be borrowing on your income.

audioblackout

massive thanks for all your help on this so far minimike2. i owe you one..

ok so in reply to your post: yeah, i can afford it. i've done the sums and the end to my car loan is enabling me to do this. and yes - it is half a house

what i really badly need to know is:

a) do you think if i move to a new company, they will allow me to borrow the full £160,000 on a 25k income? i really doubt it eh from the vibes i'm getting from this...

b) will a new company enable me to borrow the amount for an extention even though i have mortgage on the house presently elsewhere?

i suppose the reason why i'm asking is if the answer to both these q's is no, i have no option but to go to my present mortage lender (halifax) and get ripped off with some ridiculous deal. i would much prefer to go to a broker..

as always any help is massively appreciated

minimike2

I would still advise it to be too much exposure, however if you are going to go ahead and do it anyway, I would suggest that you will find it difficult to borrow that amount times your income at that loan to value at any kind of decent rate.

Of course things might have changed by December, but I wouldnt want to bank on that!

*edit*


Just done a very quick search for you based on these figures and current products - It wouldnt fit any "prime" lenders current affordability criteria, so no is the short answer - unless you would want to pay a rate of at least 7% with a non-conforming lender.


In relation to question B - If you did this you would need a secured loan. Depending on what rate Halifax are offering on the extra borrowing, this could be cheaper short term, but usually for borrowing of this magnitude its better to look at having it as part of the mortgage rather than a secured loan.

tomstickland

I'd be careful and get some opinions as to what value the extension will add to the house. The apparent increase in value of your house from £100K to £190K is not real money - it's just the market moving upwards over time. Imagine that it moves back down, your extension costs you £60K but only adds £30K to the value of the house, you could expose yourself if you want to move.

audioblackout

well you've completely set me straight on this now, so thank you minimike. it looks like i'm going to have to borrow the money from halifax no matter what.

to tomstickland, if i look at this as a short-term profit making exercise (i get out in 6 months once it's built), i suppose even at silly rates, the money to be made is much more than the money i will lose on interest.

i think also if you look at the longer term, even if house prices went down to levels when i bought it four years ago (or even less), i'd still not lose money. as long as the house is worth the £160,000 mortgage i will have once it's done (which for a four-bedroom house in a prime location in Leeds is not unreasonable even given the economic instability), then surely this will work out good.

ok well thanks everyone. and if anyone has any advice to add, please feel free!!!

minimike2

If you decide to go ahead with it then I hope you end up with the house you want...dont forget to take lots of photos as its going up!

TwelfthMan

Halifax will not allow you to take your mortgage up to £160,000 on an income of £25,000.