Bank won't give me a loan due to equity

NegativeNellie · 21 October 2019 at 5:45PM

Hi,

I am wondering if someone can please help me I am desperate.

My partner and I bought our home in 2017, a 2 bed semi at £210k with a mortgage of £184k and 13% deposit on a 5 year fixed rate. We have paid back nearly £20k so far. We are wanting to do an extension on it and have had the plans agreed. The quotes roughly for this is £80k but the bank has told us they can only give us £20k due to not having enough equity on the property yet. I am devastated to say the least as houses in our area are doing similar and it is adding value to the properties. They are now going up to £300k as a 3 bed semi. We are both earning good money and have savings but that doesn't seem to matter to them. Other people have mentioned to try brokers is this something we should look into? Is there something else we can do? Or is it just a pipe dream and we should sell and move?
I would really hate to as we would love it to be our forever home as it is close to a school, not over looked, has a big garden, garage and driveway. Any help would be much appreciated:(

Davy_Jones_II · 21 October 2019 at 5:50PM

Speaking to a broker seems like a good idea, if there is a route to financing your improvements then they should be able to help you to find it.

Another option is to use your savings, and if they don’t cover all of the work, do it in stages.

[Deleted User] · 21 October 2019 at 5:51PM

They're right that you don't have nearly enough equity.

Use your savings and plan the work to reduce the amount you need and see if it can be done in stages. You may be able to break the remainder into smaller chunks.

Also consider how long it would take you to save the full amount.

Willing2Learn · 21 October 2019 at 5:55PM

Hi NegativeNellie,

Davy_Jones_II wrote: »

Another option is to use your savings, and if they don’t cover all of the work, do it in stages.

Deleted_User wrote: »

Use your savings and plan the work to reduce the amount you need and see if it can be done in stages. You may be able to break the remainder into smaller chunks.

I agree with both of the quotes above. Especially if you "would love it to be our forever home as it is close to a school, not over looked, has a big garden, garage and driveway"

NegativeNellie · 21 October 2019 at 6:26PM

Thank you for the responses we have savings but not enough unfortunately, I will speak to a broker and see what can be done. It just seems mad to me as the house would increase in value for doing it which is a shame

[Deleted User] · 21 October 2019 at 6:31PM

NegativeNellie wrote: »

It just seems mad to me as the house would increase in value for doing it which is a shame

It would be mad if they lent you the money and you either messed up the extension or didn't do it at all. You'd then owe them vastly more than the value of your house.

That's the issue.

Willing2Learn · 21 October 2019 at 6:41PM

NegativeNellie wrote: »

It just seems mad to me as the house would increase in value for doing it which is a shame

The bank cannot make a decision to lend based on how a property may increase in value, as property prices fluctuate and may go down from time to time.

[Deleted User] · 21 October 2019 at 6:42PM

NegativeNellie wrote: »

Hi,

I am wondering if someone can please help me I am desperate.

My partner and I bought our home in 2017, a 2 bed semi at £210k with a mortgage of £184k and 13% deposit on a 5 year fixed rate. We have paid back nearly £20k so far. We are wanting to do an extension on it and have had the plans agreed. The quotes roughly for this is £80k but the bank has told us they can only give us £20k due to not having enough equity on the property yet. I am devastated to say the least as houses in our area are doing similar and it is adding value to the properties. They are now going up to £300k as a 3 bed semi. We are both earning good money and have savings but that doesn't seem to matter to them. Other people have mentioned to try brokers is this something we should look into? Is there something else we can do? Or is it just a pipe dream and we should sell and move?
I would really hate to as we would love it to be our forever home as it is close to a school, not over looked, has a big garden, garage and driveway. Any help would be much appreciated:(

I'm actually surprised your mortgage lender has offered you £20,000. When you first bought the property you only had £26,000 of equity and when you say you've paid back nearly £20,000 is that nearly £20,000 or capital or made nearly £20,000 worth of repayments which will include a lot of interest.

Unless property prices in your area have increased by around 25% there's no way you have close to £80k of equity.

enthusiasticsaver · 21 October 2019 at 6:54PM

As others have said a bank will not lend on the assumption that a property will increase in value as there are other circumstances in play like a possible bad extension, a builder which goes out of business half way through leaving it uncompleted or drop in property values or even a failure by the borrower to extend at all leaving the mortgage higher than the value of its security.

Most people wait more than 2 years after buying before trying to extend so they have a larger chunk of equity so is it possible to wait and save up enough for at least one tranche of payment to the builder. Some will not want all the money up front so my advice would be to save hard and wait a few years. You could use 0% credit cards and then hopefully remortgage once the extension is done.

DCFC79 · 21 October 2019 at 7:01PM

Yes other nearby home owners may have had work done but maybe they were in a better position or had the savings to do it.

Either you carry on saving or do it in stages eg take out a loan for x amount and use some of your savings to get part of the work done then rinse and repeat.

Xbigman · 22 October 2019 at 2:59AM

Do you actually need the space an extension would give you right now? If you don't it would mean you are paying interest for building an extension you don't need. Save up and build it when you need it. Paper house price increases financed with real money is a bad idea.

Darren

Bank won't give me a loan due to equity

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