Funding a House Extension

[Nitefly]

Hello!

I’m hopefully moving house in the next few months (having a buyer lined up on my new place and have had an offer of mine accepted on the new home). Very exciting!

We really like the idea of doing a substantial loft extension and/or a extension to the rear of the house. Both really, but it’s not obvious which would be best until we’ve lived in the thing.

We have a pretty chunky deposit meaning that we if we used the whole thing towards the house, we’d put ourselves at the 75% LTV rates, which is great. The house is in the £500-600k range so the slightest increase in percentages does mean a pretty gnarly jump in interest paid per year.

One obvious way of funding the extension would be to use less of our deposit towards the house, keep the cash in the bank (~£70k-£80k), and have a higher LTV on the mortgage. But by my calculations we’ll end up paying about £12k a year more in interest paid on the whole of the borrowing, which seems mad - ouch!

Edit - it’s actually £6.5k pa

In short, how have people funded house extensions in the past? Or what is the generally accepted best way of doing it?

To my mind, it makes more sense and is more prudent to get the house at the best LTV rate now and then reconsider extensions at the point our 2 year fixed term comes to an end (rather than having cash needlessly lying around whilst we finalise our plans). I guess I’m just a little impatient and want the best house possible up front.

Interested in what people have to say.

Cheers!

 

[theone8181]

I added some onto my mortgage, however as I live up north (assuming you live more southerly), my mortgage only had 100k left, so adding the 30 for the new extension wasn't a big deal. While paying the extra in interest isn't good, if it makes it more affordable it might be your best choice.

 

[Psycho Sonny]

If your saving £12k a year in interest .

Then why not save that £12k for 3 years then take a loan out for £10k or so that way you have £46k to do at least one of them.

 

[mid_gen]

Hello!

I’m hopefully moving house in the next few months (having a buyer lined up on my new place and have had an offer of mine accepted on the new home). Very exciting!

We really like the idea of doing a substantial loft extension and/or a extension to the rear of the house. Both really, but it’s not obvious which would be best until we’ve lived in the thing.

We have a pretty chunky deposit meaning that we if we used the whole thing towards the house, we’d put ourselves at the 75% LTV rates, which is great. The house is in the £500-600k range so the slightest increase in percentages does mean a pretty gnarly jump in interest paid per year.

One obvious way of funding the extension would be to use less of our deposit towards the house, keep the cash in the bank (~£70k-£80k), and have a higher LTV on the mortgage. But by my calculations we’ll end up paying about £12k a year more in interest paid on the whole of the borrowing, which seems mad - ouch!

In short, how have people funded house extensions in the past? Or what is the generally accepted best way of doing it?

To my mind, it makes more sense and is more prudent to get the house at the best LTV rate now and then reconsider extensions at the point our 2 year fixed term comes to an end (rather than having cash needlessly lying around whilst we finalise our plans). I guess I’m just a little impatient and want the best house possible up front.

Interested in what people have to say.

Cheers!

Get the best mortgage you can now. When you know if/what extension you want, then release some equity by topping up the mortgage.

 

[MassiveJim]

Are you working on the assumption that you can get a 90% mortgage ?
We are currently in the process of applying for a new mortgage to move house and they are telling us that 90% LTV applications might not be accepted, so bear that in mind also.

I'd definitely agree with Sonny here, if you are potentially looking at the option of taking out maximum borrowing and can afford it then just save the money over the next 3 years especially as you said you wouldn't know straight away what kind of expansion you would want.

 

[bayo000]

Hello!

But by my calculations we’ll end up paying about £12k a year more in interest paid on the whole of the borrowing, which seems mad - ouch!

In short, how have people funded house extensions in the past? Or what is the generally accepted best way of doing it?

To my mind, it makes more sense and is more prudent to get the house at the best LTV rate now and then reconsider extensions at the point our 2 year fixed term comes to an end (rather than having cash needlessly lying around whilst we finalise our plans). I guess I’m just a little impatient and want the best house possible up front.

Interested in what people have to say.

Cheers!

Are you sure you have your maths right? £12k a year saving on interest seems wrong.

Personally we kept money in the bank but we were in fortunate position to still have enough for 30% deposit to get into 70% LTV rates.

 

[Nitefly]

Are you sure you have your maths right? £12k a year saving on interest seems wrong.

Personally we kept money in the bank but we were in fortunate position to still have enough for 30% deposit to get into 70% LTV rates.

By putting ~60k less into the deposit, the additional interest increase is ~£13k over 2 years, so not £12k per year as I said above.

Apportioning the whole extra interest just to the ~£60k, it means I’m equivalently borrowing the ~60k at around 11%pa interest. It’s not awful, but it’s not great either.

As per the OP, I’m curious as to how people have paid for their extensions - at the point of remortgaging or otherwise.

 

[sigma]

Save some (a lot of?) money and DIY?

 

[Nitefly]

Save some (a lot of?) money and DIY?

DIY a loft extension?

 

[Slade2]

I recon you are thinking to far ahead to you ask me. Have you lived in the area of the new house? What are your longer term plans? is this your forever home? Are there kids and schools involved? Will the planned extension to the house actually add value to it? (recently I know of a small extension that ended up cost silly money but didnt had anywhere near the cost to the value of the house)

If you plan a large extension and then get the house revalued you might find you are able to drop down a band when you remortgage due to the added value of the property.

Also, if you are already looking at extending a house even though you have not purchased it just yet then might I suggest you are looking at the wrong house? or is this a doeruper?

Take the 2 year fix and save as much as you can in those two years and then have another look. You can access then if you want to continue to live there or maybe even move somewhere else.

 

[fobose]

As per the OP, I’m curious as to how people have paid for their extensions - at the point of remortgaging or otherwise.

I would say it depends how long you can wait. If you had say a 5 year fixed mortgage, you might find by the time you need to renew, your property may have increased in value enough or supplemented with what you were able to save during that time.

 

[200sols]

DIY a loft extension?

You can get people in for the actual structure, but you can save a lot of money if you do the finishing work, any plumbing, certain electrical work, fitting bathroom etc. Depends what the plans are really. Obviously it depends if you have any DIY skills and lots of spare time.

 

[Nitefly]

I recon you are thinking to far ahead to you ask me. Have you lived in the area of the new house? What are your longer term plans? is this your forever home? Are there kids and schools involved? Will the planned extension to the house actually add value to it? (recently I know of a small extension that ended up cost silly money but didnt had anywhere near the cost to the value of the house)

If you plan a large extension and then get the house revalued you might find you are able to drop down a band when you remortgage due to the added value of the property.

Also, if you are already looking at extending a house even though you have not purchased it just yet then might I suggest you are looking at the wrong house? or is this a doeruper?

Take the 2 year fix and save as much as you can in those two years and then have another look. You can access then if you want to continue to live there or maybe even move somewhere else.

Yes, the part in bold does seem like it makes the most sense and is the plan of action I had concluded as per the OP.

The idea is to open up and reconfigure the downstairs to our preferred living set up. Currently it’s an absolute whopper lounge / living room / dining area and an isolated kitchen. We’d much prefer an isolated lounge and then a wide open kitchen / dining area / living room and there is scope to do this with extending further out the back of the house.

As for the loft extension, this would be the usual master bedroom / en-suite jobby. It would be nice to have that available prior to the arrival of children.

This is a planned ~10 year house located on a road we are very fond of, so it makes little sense to wait around for a house with a slightly different configuration that may have other things not to our ideal tastes.

I don’t think many people have said how they have paid for their extensions so far (i.e. via remortgaging, cash savings etc) so I remain curious!

 

[Nitefly]

You can get people in for the actual structure, but you can save a lot of money if you do the finishing work, any plumbing, certain electrical work, fitting bathroom etc. Depends what the plans are really. Obviously it depends if you have any DIY skills and lots of spare time.

Definitely not the time nor the skills, but thanks for the suggestion

 

[b0rn2sk8]

Buying a larger house will almost certainly be cheaper these days than extending an existing one. Extensions rarely add the ammount they cost to the value of the property.

 

[sigma]

I don’t think many people have said how they have paid for their extensions so far (i.e. via remortgaging, cash savings etc) so I remain curious!

Surely it’s the same as any big purchase? Cash, loan or mortgage extension/release. What other options are there?

 

[Nitefly]

Surely it’s the same as any big purchase? Cash, loan or mortgage extension/release. What other options are there?

I’m aware of people taking out a second mortgage rather than amending their existing one, but not sure how common that is and it’s not obvious what the advantages are.

 

[b0rn2sk8]

I’m aware of people taking out a second mortgage rather than amending their existing one, but not sure how common that is and it’s not obvious what the advantages are.

Adding to an existing mortgage and having a second mortgage is effectively the same thing. You have to do it with the existing mortgage provider and you get the terms they offer today, not your existing terms.

If you increase your mortgage you add a second account to the mortgage which runs to its own timeline and interest rate. Once both elements are out of any fixed term periods you are of course free to remortgage back to a single account.

 

[Jez]

Buying a larger house will almost certainly be cheaper these days than extending an existing one. Extensions rarely add the ammount they cost to the value of the property.

Seems a bit of a sweeping statement with the massive cost of SDLT and the very variable nature of houses and build costs depending on who you use, and how you do it Ive extended our house a lot now (3 separate extensions) as the massive SDLT costs when moving and no ceiling price in my village mean that it has always made financial sense to maximise our plot.

We are still ultimately going to move though as i get bored when i have no building work going on

 

[Nitefly]

Adding to an existing mortgage and having a second mortgage is effectively the same thing. You have to do it with the existing mortgage provider and you get the terms they offer today, not your existing terms.

If you increase your mortgage you add a second account to the mortgage which runs to its own timeline and interest rate. Once both elements are out of any fixed term periods you are of course free to remortgage back to a single account.

Thanks. Yes, that is as I was aware. The options effectively being either a remortgage only (perhaps before the expiry of any fixed term) in entity or a second borrowing as you detail here.

From what I gather, it’s a bit of a pig to have a second timeline and to the extent possible, probably best to just deal with it all in one go (I.e. a remortgage at the end of a fixed term).