Releasing Equity From Remortgaging

[SalsaLala]

We’re due to remortgage early next year, and I’m toying with the idea of releasing some equity to do some home improvements (converting garage to dining room, adding downstairs loo, possibly putting a proper roof on our irritating conservatory). Is it a totally daft idea? It would definitely add value to the home, and although I know it adds to the overall amount of the mortgage, we could afford higher repayments comfortably.

Our mortgage is pretty low (23% of our post-tax income), our home has increased in value by £25k(ish) since buying four years ago, and including our deposit we’ve paid off £33k. No other debts (except student loans). We’re in a house that we intend to stay in long term but it urgently needs some TLC, we bought it as a fixer upper and then I had a couple of maternity leaves in a row.

Aside from the fact that it works out more expensive because of the added interest, is there anything obvious I’m missing or that we need to take into account when considering this?

We would obviously see a financial advisor / mortgage broker to talk it all through properly if we go ahead, I’m just trying to research it as an idea right now. Any thoughts gratefully received!

We're looking at doing something similar.

House worth 460k
Mortgage 180k
16 years left on mortgage.

Want to borrow 40k

Repayment stays same on a 5 yr fix as money is cheap to borrow right now.

Watching as we are also in exactly the same position. Remortgaging beginning of next yr and like you we also want to install a downstairs toilet and a solid roof onto our conservatory. We are also going to repave our drive weedy tarmac at the moment.

From what I understand, you can borrow the extra amount anytime so you don't have to wait till your current fix comes to an end. Basically you end up with two mortgage products.

Whilst your current mortgage is 23% of after tax pay, do you pay nursery fees? Would this affect your affordability?

We looked into moving instead but it's a huge financial jump to the next house; currently in a 3 bed semi ex-council. So we decided if we are staying then we might as well have the house the way we want to enjoy it for a long time.

Hate to be a dolly downer but (if you haven't got already) I'd research some income protection/critical illness insurances. If you rely on an income from wages that is.

I'm aware that some folk say "but what are the chances" etc but exactly that happened to us. DH had an accident at work 4 years ago so we were one income down and he hasn't worked since and will never work again. We'd 2 years earlier bought a new house based on our combined wages. My wage does cover the repayments and other outgoings but it's tight.

I think we would only free up around £30k - but it would certainly allow us to do quite a bit, and the rest we could pay ourselves over the next couple of years.

I did read somewhere about being able to get the second mortgage product, I didn’t fully understand it though. Does it have to be with the same lender and the same term or is it an independent debt? No nursery fees as we have grandparents who do childcare, we both have permanent contracts etc so affordability fine. The only negative is that I’ll be going back from maternity leave in January so if they need three months wage slips that will be an issue. Might need to go through a broker to find a lender that won’t be an issue for!

I keep thinking we should look into that cover, what put me off was years ago my driving instructor telling me about his colleague who paid into that and then it wouldn’t pay out when his wife had cancer. I guess there’s different types of cover though. We’re the same, one of our wages could cover our outgoings (even if we increase the mortgage by choice) but it would be tight.

We’re the same not moving would cost an arm and a leg, we’re also in a three bed ex council semi, it will be fab when we’ve done all the bits we want to, poor house is just a bit shabby at present!

getting rid of garage may reduce not increase the value.

I am a mortgage adviser, it is very common for people to remortgage and borrow further funds to improve your property, especially if you increase the value.

If you are tied into a fixed deal with high early repayment charges you will be better off contacting your lender and finding out what you could borrow as a further advance and at what rate. A mortgage broker will not have access to this info, you need to approach the lender yourself.

If you are at the end of your deal, it will be best to see an adviser and get some remortgage rates and advice on your current situation.

You can also get secured borrowing but this is usually used by people who cannot remortgage or get a further advance and the rates are higher to reflect this.

Really with regard to the garage? We have a driveway so off road parking anyway. I’d have thought turning it into an open plan kitchen diner with a utility room would add more value? I’m not personally fussed as it’s more about improving the house for us to live in, but useful to bear in mind as I guess it might affect how much the mortgage company will lend.

Squash Thanks, that’s a really useful explanation. My MIL used to be a mortgage advisor (I asked her about this yesterday - I was using this thread to check us wasn’t a stupid idea before I did, she thinks it’s a great idea!) and she tried to explain that but your explanation is much clearer!

I think I will make an appointment with a mortgage advisor at our lender purely because our circumstances have changed generally since we bought (two children - though no nursery fees - and salary changes independently, though our household income is roughly the same). I’m also on maternity leave so I want to get a feel for if this would be a barrier remortgaging or not. I’m wondering if we might need a broker to figure out the best lender for our circumstances, though MIL was quite negative about using a broker.

I think we’d wait until January when our deal ends because there is a penalty for breaking the deal early (I can’t remember what precisely) and also I’m on maternity leave until then and would rather wait until I’m out of the house three days a week for building work to start. Plus it gives me a few months to research the borrowing options, get architects and quotes etc.

Thanks so much for all the help on this thread, it’s been really useful!

I thought about starting the process with seeing what my bank Nationwide would offer us before comparing with other lenders. I noticed on their website that to be able to borrow more, you need to have held your current mortgage product for at least 6 months. Which got me thinking that does it mean we won't be able actually borrow the extra if we decide to stay with our current bank at the beginning of next yr? Do other lenders stipulate this? I will give NW a call to find out more.

Notyetthere - You can remortgage to a new lender and borrow more at the same time (as long as you meet their criteria) immediately. What Nationwide is saying is is if you remortgage to them but then want to borrow additional money later - called a further advance - you have to have had the mortgage for at least 6 months.

Once your mortgage is due for renewal, if Nationwide offer a good retention product and you decide to stay, you can apply for additional borrowing at the time and as long as you meet their criteria it should be fine.

I’d get advice from a whole of market mortgage broker at the time, as there is a chance you would get a better deal by switching to a new lender, but they can confirm this by checking what Nationwide offer versus what else is available to you.