Funding an extension and mortgage rates/LTV

[Buildershateme]

I've name changed, as I want to be fairly detailed about the financial issues, but slightly less identifiable than I would be from my other posts!

Anyway, we bought our house 3.5 years ago - it's a typical three bed 1930's semi, with a loft conversion and the two reception rooms knocked through. The kitchen is teeeny and there is one bathroom with a loo in it. The loft conversion is terrible - no insulation, dodgy wiring and plumbing, two tiny rooms, freezing in winter, boiling in summer and the stairs up to it are open tread and lethal. I can't put one of my kids up there as it is and it doesn't really contribute much to the value of the house (particularly as it's a pig ugly back and side dormer conversion which would NEVER get planning permission now).

We paid £350k for it and have about £215k and 22 years left on our mortgage. We have been left some money which we propose to spend on redoing the loft conversion and building a side and rear extension. We've had plans drawn up etc and quotes (which seem to get higher every time they're redone, sigh) and the new house would have four/five bedrooms, two with ensuites, a new family bathroom and a downstairs loo, utility room and bigger kitchen. We've got a rancid double garage to the side of the house, which we'd demolish and build on, and a massive back garden, so all in all it would sit well within the plot, make it a more aesthetically appealing and balanced house (as opposed to the current 5 bedrooms to 1 toilet scenario) and would mean that we could stay there for another five to ten years.

It would however cost £110k. We have £30k of that, but would need to borrow £80k. I earn £50k, OH earns about £30k (he is self-employed) variable, but never less than £1k a month. Bank is perfectly prepared to lend us the extra money but would fix us into a 2yr mortgage deal at quite a high rate of interest because of course they can't take the new value of the house into account until it's all done and dusted. We can afford to pay the much increased payments for six months while the work is carried out, but can't pay them for another eighteen months after that. Essentially the new payments would be around £1800 a month on our current valuation, but would drop to £1000 a month if the house was valued at £500k following the work (a four bed, two bath house with a postage stamp garden on our road sold for £460k two years ago, a six bed, three bath house went for £599k earlier this year so not an unreasonable estimate as they're all the same house, just extended in different ways). I've been wracking my brains to work out how to borrow more flexibly so that we can remortgage in six months on a lower interest rate, but I can't work out how to do it. I can't be the only person who's had this problem can I? Bank have been massively unhelpful but that was the branch, I haven't called the mortgage centre. We pay around £1200 a month now, and could pay £2-300 more a month for a couple of years, but not £600 more a month for a couple of years.

Any ideas/suggestions/experiences? I'm so stressed about this now. Have been planning this for over a year, spent so much money on plans etc and never really thought about not being allowed to change our mortgage for two years. Idiot.

[Mandy21]

We're in a very similar position in that we don't have the money upfront for the works, but would be able to afford the repayments once the house was revalued and remortgaged. You have got further than us ? our bank won't even consider lending us anything (whether they tie us in or not) based on the new value of house once the work is done. They will only let us release equity (although we don't have much) based on the current value of the house.

From a lenders point of view, you can understand it, as there is no guarantee that the house will be worth what you think it might be worth (it seems unlikely but in 2007/2008 the bottom fell out of the market overnight so if the work takes 6 months, the projected valued of the finished house might be completely different to the actual value once finished).

In your situation though, you have quite alot of equity within your house based on its current value. I'd suggest you ring London & Country (all market broker ? you don't have to pay for their advice) and see what the maximum is you could borrow on the current value, without being tied in. Do you know whether its still worth £350k or whether it will have increased / decreased. You could take your mortgage upto say £297k (which would release the £80k you need) and you'd still have a 15% deposit (based on a value of £350). The only potential difficulty I would see if getting the income multiples you'd need given that your H's income can vary. Obviously if you're not tied in, you can remortgage once the work is done (again you've got to be sure of your figures if you can't afford the initial repayments so you're not getting yourselves in difficulty if you can't remortgage as easily as you hope at the end of it all). Good luck.

[Mandy21]

Sorry just realised that banks offer is based on current value - I'd see what L&C say others banks will offer.

[LastButOneSplash]

I'd ask a financial advisor. Ime they can make pretty tricky situations work

[Potterer]

Another vote for London and Country, they are fab, DH is self employed so remortgaging is a logistical nightmare. We have used L&C for about 7 years and for our house move a few years ago.

We saved for our extension although it was only £30k. Could you do yours in stages to increase the value up, ie get the loft done first with the £30k put towards it?

The building works you are proposing are huge and depending on how well you cope with stress, dirt, dust and not having your house to yourself may well mean you have to move out whilst the work is going on.

I literally had an extension built onto the back of my kitchen but my dining room was used to store all the new kitchen before it was installed. My lounge currently has 4.1m lengths of worktop in it, skirting board, architrave and new doors as the dining room isn't quite long enough.

That means 3 out of my 4 rooms downstairs are a complete mess. Plus we are using the converted garage (playroom) as a temporary kitchen and dining room. My two sons are sharing a bedroom as we have used one bedroom to store all the plates/bowls etc from the kitchen. Just something to think about.

[BoundandRebound]

You want a 290k mortgage on a joint salary of 80k?

Seems a bit high to me

What rate are you being offered, could you do build in stages so you get a better rate?

[Buildershateme]

It's not terribly high - if we got a good interest rate, we'd be looking at £1300 a month (sorry, typo in OP), which is less than a third of our (average) take home (although I have no idea what a sensible percentage is supposed to be tbh). For donkeys years, we were paying £1200 and earning a hell of a lot less. You just adapt to your circumstances - right now, when my (stable) income comes in, we put the mortgage payment and money to cover all bills into one account. The rest goes into our spending account, I do a big monthly shop and then we live off the remainder of my salary and whatever DH earns that month. Plan is to start using a bit more of DH's salary to save against lean months and not buy pretty things with it quite so often. We're also considering not running a car for a year or two, as that would save us a fair bit and we don't really need it. I'm in line for a promotion over the next six months which would take me to £60k - I'm not counting on it, but it will make life easier if it pans out. As will paying off my student loans early next year (thankyoujesus) and DD starting F/T education in September.

Advice is very helpful - I have had an estate agent round last night to value the house as is, and with the different bits of work done and I spoke to L&C this morning. They're going to call back with options.

Estate agent said we'd market at £415k as is and sell for £400k, so I'm guessing the bank would value at more like £375/380k. With work done to a decent standard, we'd be looking at marketing at £585k and taking offers around £560k. So the bank valuation would be lower than that, but it is worth doing and we would eventually get a good LTV (we live opposite a good primary school, on a cul de sac with an enormous park over the road, within a mile of the tube station, so the area is pretty good even though it's in Zone 4).

According to the builders we'll need to move out for two weeks near the end of the build. I cope pretty well with building works, I put the bathroom and kitchen into our last flat myself while working full time and managed some fairly messy renovations while juggling a newborn when we first moved into the property. DH on the other hand, may need to go live with his brother for a bit. I would far rather get everything done in one fell swoop or we will just not do it. When we moved in the plan was to do the kitchen within a year and I've been living with it for three and a half. Mind you, having a bedroom with an en suite will be heavenly.

[Sixtiesqueen]

We bought a wreck of a house and remortgaged in stages to do the work.

So in total we spent about £160k on the extension/renovation but we only had £80k of that upfront.

I did quite a bit of research at the time because we really wanted to buy the house but knew we couldn't finish it for £80k.

We basically found a sympathetic builder. He did about £100k of work to get the house to the point where we had properly increased the value. We continued to pay him until our £80k ran out but he continued to work unpaid knowing that the house was worth quite a lot by this point. We went back to the building society and they revalued it and lent us the rest of the money to finish the job.

The key was getting the house to a finish so it was obvious to the surveyor what the finished product would be like. I remember the day he came to revalue it and he was a bit Dubious but luckily the kitchen was being fitted tha day and he took one look at the quality of that and declared that we obviously planned to finish it to a high spec.

You know there is another option and that's a specialist mortgage company for people in this situation and its called 'build store' - I found it as part of my research. It's worth considering.

[BoundandRebound]

I think you should calculate whether it will still be affordable when interest rates rise.. A mortgage rate of 5% over 25 years would be £1695. If it rises to 7% it would be £2050

If that is affordable then that's fine

[Herhonesty]

Agree with above. 1300 on a 290k mortgage will not last forever.

[Buildershateme]

We will be able to fix for two years - at the end of that two years, even without me getting promoted our disposable income will have risen significantly as both kids will be in f/t education and I will have paid off my student loans (which will give me back 9% of my net salary). I'm not too worried. If we had to, we could pay now at 5% and 7% would probably involve getting a lodger. But still fine. That's how we used to pay our mortgage when I was a student.

[poocatcherchampion]

have you had any feedback? imagine if they went for it!

[poocatcherchampion]

sorry clicked on wrong thread...

[BoundandRebound]

Sounds like you've got all the bases covered. Good luck with your build

[Talkinpeace]

WE did exactly what you plan.
We took the side wall off the whole house (1930 semi) and added a 1.1m side extension, added a 3m downstairs right across the back and a 1.5m upstairs backwards on the small bedroom
which added to the sideways
and the loft conversion
has given us a fab house
it was 9 months of hell

BUT
we did all our mortgaging on the value of the unextended house (both being self employed) as then we got better rates
AND
although rates are holding steady at their historic lows, I remember 15% : 4% is likely within a couple of years