£50k unsecured loan?

markandcha

Hi,

Myself and the wife bought our house a year ago with the intention of extending it to the tune of £50k max (new kitchen/extra bed).

The mortgage was 90% LTV..

Now with the cred crunch and house prices falling, I am worried that when it comes round to remo again next July (start arranging in May 09) my LTV could be 95%, as the prop value falls quicker than the decreasing mortgage balance..

To avoid moving to a 95+%LTV product or god forbid the SVR of c&g..we want to do the work on the house so the value goes up at the very least and minimise the LTV (overall)...

Prop value is £280k
Mortgage is £245k est at time of remo in '09..

No add secured/unsecured borrowing..

Is it worth it/posible to temp go technically >100% LTV temporarily (well maybe not as the loan isn't secured) whilst the work is done, by taking out a large unsecured loan...don't think >100% LTV secured are available anymore...

that way we could get the work done , by the time we remo..and hopefully the LTV would be < 95% as the house would be worth £325k with secured borrowing still £245k (unless lenders would take the unsecured into account), int rate wouldn't be as high as a 95%+ product + we benefit from the work done..

guess what is happening is going to affect a lot of people, seems a shame that a) we do have the money to pay for it per month (i don't have the money aside in one lump though, + it would take years to save), b) we are completely prime, no missed payments..

thanks for any advice..
m&c..

markandcha

Av funds per month available are around £700 / mth...

£50k wd come from two loans for £25k taken out in each of our names..

Wd a bridging loan work?

Also the intention is to pay off any loans needed for tis project when we remo in 09, with ~ £80k equity, if prop val goes up the same amount that we spend on improving it...

£245k m balance / £325 prop value.

devils_advocate

Av funds per month available are around £700 / mth...

£50k wd come from two loans for £25k taken out in each of our names..

Wd a bridging loan work?

Also the intention is to pay off any loans needed for tis project when we remo in 09, with ~ £80k equity, if prop val goes up the same amount that we spend on improving it...

£245k m balance / £325 prop value.

I've highlighted the important point in your post.

The assumptions that held true in the market which lasted up to end 2007 don't hold true anymore. You have to be very careful that in spending £50k on the house, you don't add only £25k to the relative value. Previously this wasn't a problem, as house price inflation would have added say £40k to all the houses in the road, which would have meant taht you would still have got back a 'profit' on the £50k you spent,

But because its a different type of market, be very careful that you don't spend £50k, which adds value of £25k, and the whole street loses value of £60k !!That would mean your relative loss is £85k from today's value.

You're quite right in wanting to minimise loan to value, but beware that the value doesn't fall because of factors outside your control..

In the last decade, lots of people have made lots of money because of the upside from gearing. As we're now moving into a phase where prices are falling, lots of people are going to lose lots of money because of the downside of geariing.

Mods / Martin - any chance of an article as to how gearing works, so that MSEers can see the pifalls?

CLAPTON

your house you say is worth 280000 to day
say the 50k actually adds 50,000 to the value i.e. now valued at 330,000

it quite possiible that over the next year or so property will fall by 25% so next year your property will be valued at 247,500

Now you need to remortgage with no equity and have to keep repaying a 50,000 loan at presumably a fairly high interest rate.

Seems a bad idea unless you actually need the extension (family etc.)

jonesMUFCforever

I have to agree with Clapton. Two very high repayments on personal loans with very little upside in current market conditions for the foreseeable future.

You certainly won't get a bridging loan unsecured - in fact it wouldn't work at all in this situation.

Nobody really knows what the housing market will be like in a year's time - too many unknown factors. If it was me I would not extend at this time but keep a slush fund handy to overpay the mortgage if necessary in order to get a LV mortgage to your liking. Loading yourself with a £50k debt is not the way I would do things at the moment.

If you can really afford two big loan repayments why not overpay now to bring your mortgage debt down?

PasturesNew

Have you calculated what the SVR would be over the period that you would have remortgaged?
Remortgages come with up front fees, they take the interest up front in effect.

Do the maths and you might find out it's not as bad as it sounds. There are a lot of scare stories about SVRs going round. Do the maths on yours.

If you don't know how to do the maths, get the figures (up front free, fixed-rate period/rate; current SVR) and come back here for somebody else to calculate it for you.

If you've not borrowed the £50k, I'd say don't do it.

Do you NEED the extra space right now? Or is it just a "nice to have"?