Should we extend or not?

[BigRenoLittleBudget]

Just that really. We have what already feels like quite a hefty mortgage although the brokers say we can comfortably borrow much more.
some numbers for context:

Our previous house had a mortgage balance of £280k and we were paying approx. £1000 per month due to low interest rate which was due to finish in sept. This would have increased to around £1400 with the higher interest rate when the product finished in sept.

However we moved to a bigger house which has the extra bedroom we need and larger living space as well as detached and better location compared to previous house. So our mortgage went up to £420k as we borrowed a bit extra to do some works, house value is roughly now £650k so we are at about 65% LTV. Our payments are currently £1670 a month and when our lower rate product ends in sept it should increase to about £1950 a month. Our combined salary is currently £5600 per month but in August I am increasing my hours from 3 to 4 days per week and we will both get small annual pay rises so combined income will increase to £6600.

Only downside of the new house is that is doesn’t have a big open plan kitchen diner that we like as it works well for us as a layout. We also would like to convert the garage to add a second bathroom and a utility.

If we just do the garage conversion we will borrow approx. 40k extra on the mortgage which will increase the payments by around £200 a month so approx £2200. However the mortgage brokers have said we can comfortably borrow another 100k which would take our total borrowing to over half a million. Monthly payments would be around £2500. Neither of us have significant commuting/travel costs and we spend around £200 a month on childcare. Other than that we have no credit card debt or car payments just normal household bills, council tax etc. DH still has a small amount of student loan left which he is forecast to pay off in about 10 months which will free up an extra £200 per month.

On the one hand the thought of borrowing so much money makes me feel very anxious and my instinct is to just be a bit more sensible. But on the other hand I think we could have the chance to create our dream house and kitchen etc and will regret not doing it as building works are only getting more and more expensive. It’s not the sort of thing you can easily save up for, that would take years to save £60k so only really possible if we borrow.

The road is a very desirable one so we are not near the ceiling price for houses in our road and valuations suggest we would recoup most of the extra 100k spend if we were to sell further down the line. Not sure how long we will stay in this house.

WWYD? Extend or not?

As someone who’s in the middle of an extension I’d say don’t do it! The cost of labour and materials has gone through the roof.

You won’t get far with £140K. Then what happens? You’re half way through an extension and you’ve run out of cash. Then what?

I’d borrow the £40K, do the garage conversion and see how much of a stretch that is before tackling the kitchen extension.

Ours isn’t even that big - 7m x 3m, but it’s put me off for life!

I would never take on a mortgage on the scale you have and yet more debt. Why did you buy the house if it didn't have a kitchen diner in the first place? Now you want to spend more, the banks will always lend but spending £2500 is one person's salary on the mortgage alone, one life mishap, one redundancy, one illness and the house of cards collapse. Start saving and paying down your debt, forget the extension til you work out what you really want. Only borrow when rates are low. I extended after remortgaging at 1.19% that's when you borrow extra cash not at 4,5%. Good luck

Your calculations make me very nervous. The world is a bit shifty economically at the moment. Our extensions (loft and then kitchen/side) both went overtime and over budget but we had quite a lot saved first. We just had to live in a slightly crappy house for a while. Whilst I understand you'd like the perfect house now I'd wait and save a comfortable buffer. Or do what pp said and just do the garage for now.

We bought the house because it was the best 4 bed that we could find in the locations we wanted that offered good value for money and scope to add value. It was run down and unloved and we have already spent £10k on it on cosmetic improvements and other bits and bobs and have done a fair bit of work and we have added around 40k to the value. It was good in other ways, and we can possibly create a smaller kitchen diner by doing internal alterations if we want to.

Sorry I maybe should have added that the kitchen is really in need of replacing now. So if we choose not to do the extension then we would probably replace the current kitchen so wouldnt then make sense to knock it all down and start again in a few years. If we don’t do a kitchen extension now we probably won’t do it for around 10 years.

The extension would be around 5 x 3m which the builder has estimated around £45k inc VAT plus cost of new kitchen but we will be doing this anyway regardless so the difference in cost is about £45-50k.

It’s not a level of debt I would be comfortable with, but I guess a lot depends on how secure your jobs are/ how good your income protection is.

It also depends on how you view finances- do you value time or money ? If it’s money then fair enough but if it’s time then step away from the debt !

Can you extend the mortgage term? I’m all for not being too conservative, but 500k mortgage with a 6k a month income seems like a lot. Have you worked out if you can really afford the monthly payments along with other outgoings?

We are only mid thirties so are on a 30 year term already.

I have worked out the payments and if we were paying £2500 a month we could still afford to save around £700 per month for longer term savings. Plus additional sinking funds for birthdays, Christmas, an annual holiday etc.

My main worry is interest rates going up because of everything going on in the world and then it becoming unaffordable in future.

I would have the option of increasing to full time hours but then we’d need wraparound care which doesn’t seem worth it for three kids; the cost adds up! At the moment we can do all drop offs and pick ups without using before or after school clubs.