Loan for house extension

[Zakh]

Hi everyone,

I just need other people's views about my situation and what would they have done on this situation?

We have a plan to do house extension. The builder has given us a quote of 87 000.

We cannot remortgage current house for next two years due to my partner credit history ( a credit card default).

We applied for loan with two private Co panoes who are happy to offer us a secured loan for 94, 000 for 24 years with 13.5% interst rate for two years which includes about 6000 their fee.

Currently we can afford the repayments and my plan is to take payment protection insurance.

I am just not feeling confident with this decision and keep thinking their might number other ways or people might have different choices in this case.

Please help me with your advice and experiences.

Many thanks.

I wouldn’t do it. Borrowing that amount of money with an interest rate of 13.5% is too high. What about after the two year period - could the company increase your interest rate further if they decide too? Could you afford the repayments if they increased it to say 20%? Plus it is a secured loan. I would personally wait until a remortgage is possible .

Thanks for your message @Riverstep. We have a plan to remortgage the house in two years and then add the loan to our original mortgage.

The plan is absolutely stark raving bonkers

I assume this is a second charge loan against the house? If you have shopped around and that is the best you can get and it's fixed rate and you can afford it and hopefully the house will be worth more at the end, then that's OK. A lot of ifs in there though.

Bonkers

Wait two years and remortgage. Unless the house is unliveable this is a seriously silly idea

Lots of people get second charge loans to do property improvement, not to everyone's taste but not intrinsically bonkers!

If securing on the property you would need to notify the mortgage company. How much equity is there in it at the moment and what would be left? It seems rather risky and unsound to take out further finance like this.

If it's a second charge the company you get the loan from negotiates with the first charge holder automatically.

I agree I wouldn't do this.

I would wait until the remortgage is available to you.

Surely you can live without the works for 2 more years?

If your partner is pushing this idea I'd run a mile - he is proven to be financially irresponsible so doesn't get a say!

Fucking mental. WHY?

keep head down, save money, repair the shot to pieces credit rating, cut your cloth and live the life you can afford. What is wrong with people?!

It is the interest that would concern me. 13.5% for two years is massive and that is on top of repayment plan for CC debt. If you could still make do, perhaps you could postpone the extension until the next remortgage and use the remortgage to apply/pay for the extension. At least the interest won't be as high.

From my POV, you may end up digging a deeper hole in debt if you carry on with house extension. It might be better to put your finance in a better shape till your remortgage term.

Not in a million years, especially not with a partner who has a history of defaulting on credit agreements. Two years is nothing, save what you would pay in repayments or put that towards the credit card debt.

This loan may affect you remortgaging in 2 years as your total credit might be used up. To be aware

You say partner so I'll assume you're not married.
The debt will solely be in your name? What happens if you split up? Sorry to be bleak but it will all be your debt if you do.
Who owns the house?

A £6k fee AND 13.5% interest? No. I would be afraid of losing the house. Definitely wait two years and save. Unless they've kidnapped your DC and are holding them to ransom it's not that urgent.

That loan is so expensive - would work out about £12k interest in the first year along with the £6k fee. So £20k down the drain. Definitely not worth it.
If you really want to do it then get your plans drawn up and plans submitted, planning permission could already take months. Then you're ready in 2 years when you can get more affordable finance.
Have you received a few quotes?

Are you sure that the loan company will allow early repayment?

Tread v v carefully.

I'd just wait two years. It's not that long.

I'd also caution that you don't seem to have much margin in there - is there a plan for what happens if work goes over budget? We've done a lot of renovation on our house and even with quotes from a great and trusted builder, they've always ended up uncovering something that required additional work (eg cracked block work that couldn't be seen until they started stripping out, lead water pipes under the floor etc)

£87k is an enormous cost for an extension.

wait and save up. If you can afford the repayments, £6k fee and high interest then you should be able to put away a decent amount every month for a few years to enable you to borrow less.

You already have a problem with credit history.

And you want to take out a loan starting at 13.5%, running for 24 years, in order to avoid ... waiting two years.

Absolutely fucking insane.

No. you wait and put it on the mortgage. We need to fix our downstairs toilet as its currently unusable and I'd like to extend at the same time but we will make do until there is availability on the mortgage. That is credit card level interest! And on such a huge debt! And a £6k fee! This is NOT A GOOD IDEA AT ALL.

Assess it as an investment and how a bank would.

If you were doing it to sell and would definitely make back more than you are spending including the interest, fine, but that is not your plan.

Inflation is not likely to exceed, or get anywhere near, that interest rate over the next couple of years. As a result you are better off waiting the two years.

Additionally I would be extremely wary if your partner has a record of over committing to credit or not having a steady income stream as it makes it much higher risk.