AIBU to want to borrow £££ to

[cherry2727]

Extend our house ? We bought a small 2 bed 1930s semi less than 10 years ago and haven't done much to it since .
Dh and I now in a comfortable position financially after years of struggling . We have circa £2k of disposable income after bills . Not life changing but it's a lot to us as I've worked hard to get to a very good place in my career .

We have about £200k equity in the house and I suggested that we could borrow £100k with a repayment of £800 over 15 years to extend the property . It's quite small ( open plan) and doesn't work well for entertaining and downstairs space . He nearly hit the roof! We ended up arguing and him saying that I was trying to drag us into financial ruin! I work so hard and I just feel like we are stuck in this small house and I have little prospects of having a more comfortable home or even buying a bigger house.For background he is very laid back and I'm a lot more ambitious if that helps .

I honestly don't want to put us into financial ruin but I just assumed that this was the natural progression as we couldn't afford to move house . Isn't that what most people in our position do? I'm really curious whether I'm asking for too much? How do people afford extensions without saving for a decade ? Am I really in the wrong to suggest such? I am new to all of this and just assumed that everyone borrowed more to invest into their property. He isn't speaking to me and doesn't want to discuss it further . I feel soo deflated but also open to whether I am being unreasonable. Thank you

@cherry2727 If you purchased a new property for £550k, you would only pay a mortgage on £270k, assuming that you rolled all your current £280k equity into it.

Your new total mortgage repayment on current rates would be about £1,400 per month. It would be worth you speaking to a (free) broker to get actuals based on your income and expenditure as those are just rough figures I calculated based on the thread information.

You'd need to consider whether your DH would be prepared to move house for more space, given he doesn't currently want to do work to the house.

Ok, work the numbers.

You bought for £250,000 and it's now worth £430,000 - that's £180,000 increase. Surely you paid more than £20,000 over the last ten years (including your initial deposit) towards the equity of the property? You should have significantly more than £200,000 in equity.

You want to spend £100,000 on an extension - presumably you'll get an extra bedroom for that but potentially not given that you've not mentioned the upstairs in your OP and (frankly) building prices are mad right now. So, if 3 bedroom properties are selling for £500,000 in your area then you've spent £144,000 (when you factor in the interest on the loan) on an extension that only increased your property value by £70,000. Spending £144,000 to get £70,000 is patently a terrible idea.

If you can afford to pay £1800 to a lender and you have (probably in excess of) £200,000 equity, why can't you afford to move to a £500,000 3-bedroom property? On a standard 4.5x multiplier, you'd need an annual income of just below £67,000 (plus enough for stamp duty and fees etc) but it should definitely be feasible. If your income is less than that then, frankly, you absolutely should not be repaying £1800 to your lender. If you cannot afford to move then you cannot afford to extend.

Flatly, the numbers do not add up to anywhere near a sensible decision. You'd be throwing away thousands and thousands of pounds, not to mention the risk that you default on the payments if cost of living gets too much or something impacts either of your incomes. Plenty of people are commenting that they did it but that's entirely irrelevant - they aren't you, they aren't living in your house, they don't have your income. It's a bit like asking "should I lose 10kg" and overweight people might say "I lost 10kg and I feel way better" but if you're significantly underweight then losing 10kg is an awful idea. Based on what you've said here, you absolutely should not do this.

Would spending that much on that property mean that it was at least worth 100k more? Before we did the when on our current pace we had it valued and asked the two estate agents who valued it what it would be worth if we did xyz work on it.

Building work is a nightmare at the moment. Unless a close friend or family member is a good builder and prepared to prioritise your work, moving to a bigger house would be less expensive and stressful (and even if your best mate did run a building firm materials would still be hugely expensive, and unpredictable over the course of the project).

If you add the state of interest rates at the moment I can see why your DH thinks it's a terrible idea.

There is always a danger that a large extension may mean that your investment is beyond the limit for the street, would you not be better moving into a larger house?

@Starseeking thank you for breaking it down like this - I stupidly just assumed that borrowing more would be more viable than moving house . We were lucky to be tied into our last mortgage deal prior to the interest rate rises so I wouldn't want to lose such a deal . I will contact our broker who we used years ago to explore our options .

@Iknownononono I think I misunderstood the term equity and so worked it out incorrectly- thank you for the clarification. I earn 70k and dh earns 28k so jointly it's over 65k. We were looking at a rear extension with kitchen . Building costs are soo expensive post Brexit- we couldn't also get a loft conversion with this money , sadly . I do agree that's it's all relative and specific to everyone's situation. I will make contact with our old broker on Monday and hope for the best . If not , we will have to save for a few years like a poster suggested .

Sounds like I might have to apologise to dh for coming up with a stupid suggestion - I feel soo ashamed . I do feel a bit angry at him as I was only suggesting something to help out our family life so my motive was in the right place even though clearly wasn't the best idea. He made me feel like I was deliberately dragging us into unnecessary debt when that wasn't my motive at all.

You should move. 100% certain of it.

You have £280,000 in equity and a joint income of £98,000. You should be able to afford a property of over £700,000.

Look at it like this:

Option A: You release equity of £100,000 and build the extension. It increases your property value to about £500,000. The position you're in then is that you have a £500,000 house with £180,000 in equity.

Option B: You buy a new property for £550,000 using your £280,000 as the deposit. You have a £550,000 house with £250,000 in equity (when you knock off the costs of moving).

It's a no-brainer really. One gives you a higher value property, a better loan to value ratio and a greater pound value in equity.

@hettie that's a very food question- I will ring a few estate agents on Monday to find out how much more value this will add. I doubt it will add this much as it's only a rear single extension and most house here have one already as the properties are very tiny on our street . It's an average first time home but not a forever home for sure . I feel soo stuck

Thank you @Iknownononono I am going to:

1. take a few breaths
2. apologise to dh - we had the argument at 1pm today and haven't spoken since
3. read the responses on here to dh

Wish me luck! Very helpful insights which has given me good food for thought- i like the idea of option 2 but I have a dh who gets very emotionally attached and not keen on change or even growth so it will be a tough conversation.

Good luck with DH.

Def review your options but if you want more space and have 2k spare a month id really look at talking to decent broker as you can afford 500/550 from the sounds of it....

I think I'd want more than a couple of months worth of savings before taking on a big debt. Are you taking into account increasing cost of living / possibility of job loss for either of you etc?

Before you make a decision this big, I would make very sure you know and understand where you think the economy in the UK is headed.

By all accounts you are comfortably well established in your home, and have the enough free money after bills to keep you safe in turbulent times.

It is very unlikely that a £100K extension will add £100K to the value of your home, so at the very least you are trading money for comfort. And you are doing so in an economy that has already inflated its money supply more in three years that at any time ever in history. We haven’t yet seen that inflation manifest itself in the real economy yet. The BoE know this and they are going to keep increasing the interest rates.

A £100K loan on a fixed interest rate over 15 years would be good if you could get it at a fixed rate, but if it’s 1.25% above base rate, and we hit 12% five years from now, that’s 13.5% on a secured loan against your home. You may be able to afford repayments at 5.25%, but can you afford repayments if the interest rate Goode’s into double figures?

For reference, the historic average for BoE base rate is above 5% over the past 200 years, with it predominately sitting between 4.5% and 7% range. We are still only at 4% and haven’t been back to mien in 15 years, so we’re due a major correction.

Just be cautious is all, because your safer than many in your home equity situation, and it would be a shame to lose it in a depressionary downturn for the wont of some forethought.

I’d want a couple of years TBH

@Testng123 I will take this into account - will look to save a bit before diving into any more debts.

The issue with your second point is that dh earns 28k so though a good idea , I feel like we can't take on any more debt if we are to rely solely on his income. Even with our 1k mortgage , we would struggle on just his salary . I feel like I can't base our future relying on just his salary though realistically it can happen and is a scary thought if we have to !

This makes absolute sense.

I’d sell the house tbh because renovation & material costs have gone up a lot recently. It’s better to buy another house with the entertaining space and extra rooms that you need. This is what we’re doing because there is a ceiling price in my area & the high renovation prices won’t make it worthwhile.

I don’t feel that you justify your desire to extend the house very well except to suggest small house = low ambition.

No mention of a need for space except to conform to your perception of normality.

I don’t think your husband responded very well… maybe you have oversized ideas often?

We’re having the downstairs renovated at the moment with a 1930’s house coincidentally and it is one thing after another re building regs, the whole budget is gone on the structural work.

We just spent £80k extending the house, more than the value we've added (around £50k) but stamp duty/moving costs/hassle made us want to improve our current home instead of move. That, and we like the location and house, and when I was looking elsewhere, to get what we have now was over £100k more as we'd have to move further away to get what we wanted to somewhere more desirable for most but we didn't like it when we looked around.

It's not always a straightforward decision and lots to take into account. Part if me wanted to put the lot into the mortgage but we are staying here for the foreseeable future, maybe forever, so we are happy with the decision.

He certainly doesn't sound very 'laid back'

This.

The increased cost of building work and the increased cost of capital have really changed the 'extend vs move' calculation. In a lot of cases, moving would now be cheaper than extending. That hasn't been the case during recent years, while debt was cheap and house prices were skyrocketing, but that isn't the world we live in any more.

@Abba123 I did state probably not very clearly that the house is small and not very good for space and hosting . We have a tiny kitchen with little storage and could do with a downstairs toilet . There's only 3 of us in the house but it's been a nightmare recently with toilet usage ! I didn't mean to perceive ambition as such- I just think that it was obvious to take up an option which would benefit the family life as opposed to spending 2k a month on smaller cosmetic projects around the house ( which is dh's idea) which add very little value to our family day to day living or even the house . I thought it was a waste of money really hence why I mentioned lack of ambition on his part.

If a larger house is 70k more why would you spend 100k on extending. Surely you will never get that money back and are better off borrowing the extra to move which won't cost you £800 pm.

@LIZS If a larger house is 70k more why would you spend 100k on extending. Surely you will never get that money back and are better off borrowing the extra to move which won't cost you £800 pm.

I think Ive misunderstood a lot tbh! I initially assumed we couldn't move as it would costs us more than 100k to do so. I've just had a look on right move and found a lovely property for £550k a few streets away however I assumed that this would mean I would lose our current mortgage deal , which is very cheap as we changed deals prior to the interest rate rises . Hence I assumed that we would be better off keeping our low interest deal and borrowing an additional 100k to extend. I will need to find out whether we will lose our current mortgage deal Or can we borrow more for a mortgage on this same rate .

I have given my head a wobble since this thread - so thankful for all insight .

Exactly , and with respect it does not sound as if your mortgage deal is that great but you may be able to port it then top up the extra.