Borrowing for extension - mortgage would be more than original value of house until extension complete?

[Mandy21]

Not sure if that title makes sense but we want to borrow money to extend our property. We have a high LTV ratio at the moment, but obviously the value of the property will increase with the extension, just not sure whether the bank would lend us the money.

For arguments sake, our mortgage is say £250k at the moment, the house is worth £300k (so LTV at the mo about 83%).

We want to borrow an extra £75k to extend but the value of the house would increase to £400k (have had two estate agents confirm this) so new LTV would be 81%, so potentially less. However, in order for the bank to lend us the money in the first place, we'd be borrowing over the value of the house.

How does it work? Any advice welcome?

bumping for you

"obviously the value of the property will increase with the extension"

be careful...not necessarily - especially in this market.

and never necessarily believe estate agents (over) valuation of properties...they do like to give the impression that all's buoyant and tickety boo, don't forget.

well since there are such things as 125% mortgages I suppose it's technically possible. Not something I'd even consider in the current climate though.

I imagine since the risk would be so high for the lender they would not give you a particularly good deal. So you would need to be very careful that you could still afford it should interest rates rise, and be able to cope with going into negative equity if house prices fall.

Why not ask the bank and some mortgage brokers, rather than MN?

Although I agree with PPs about what you have to consider before even asking the question.

I was a mortgage advisor up until 2 years ago when my husband was offered a job overseas. The 125% mortgage offer was 100% mortgage and 25% unsecured lending under one hat. This product stopped before I stopped working as an adviser, and from what I have seen is still not being offered.

If I were you I would call your mortgage lender. Explain your circumstances. Before you do that get hold of SOLD prices in your area, not Estate Agent valuations. Estate Agents are not normally keen to offer this information, but you will need it. If you know of houses that have had extensions that have sold within the last six months then try looking at nethouseprices.com and get their sold price. You will probably need three sold prices for comparison.

I hope that helps, and if I am wrong about anything I am sure that someone will be along shortly to correct me.

Good luck.

G xx

Can the extension be done in stages? You could possibly get smaller progressive loans for it, and get the house revalued in the intervening stages.

Thanks everyone. Very useful.

We've taken affordability into account - we're currently paying in excess of £1000 a month for childcare which will stop when DD goes to school and I will also be increasing my days at work so will increase my income, so we know we can cover the mortgage repayments on an increased loan, it was just a question of how we'd get that as a % of the value of the house.

Agree that the best way to go about it is to actually contact our lender.

Many thanks

Mandy

We could only borrow up to 85% of the value of our property for the extension...it didn't matter what value it was afterwards - although they did ask the surveyor to give them a figure - I assume to make sure it wasn't worth less because they would have lent the money to us for anything except speculating on the stockmarket.

I think it's very unlikely that you'll be able to remortgage to borrow an extra 75k. I can't see in this climate that the bank is going to lend you more than the value of the house, it's too much risk.

Just to elaborate, it's not the affordability that's the issue, it's the value of your house as security if something happens and they need to repossess the house

We have been through the same thing looked a loads and laods of different options. Like you we have a high LTV at present but once the house is extended the LTV will come way down.

We basically got told no they would only lend us 95% of the equity which is next to nothing.

To make matters worse for us we have money tied up in another house which is not selling so are waiting for it to sell to release the money to start the extension.

We also need to find out at which point they class rooms as habitable and therefore increse the value of the house if that makes sense as we will need to remortgage to finish the extension off at some point, so will do 2/3rds or more of it and then remortgage for the last bit

We have currently enlarged our mortgage to extend our house. For arguments sake let's say we bought our house for £200,000. It is now worth £290,000. We have been allowed to borrow £80,000. We would expect after the extension for the house to be worth £360,000. But we could not borrow on what it is likely to worth.

We were informed the mortgage companies are more likely to come to visit to value the house themselves. Something they do more of at the moment due to the current climate but they didn't come into the home. It went through very easily.

Good luck. It's not easy to decide if to move or extend.. But we love our home and cannot afford a bigger property in our area.

Thanks everyone.

Where I work, we would do a current and a "with works" valuation. We then would base the mortgage on the with works valuation for LTV purposes. And max lend in total would be 85% of this.

However, we will then only release up to 85% of the current value, then once you have fully completed the works, we revalue, and provided the new value is as expected, release the rest of the money.

It's a bit chicken and egg as it means you may have to fund the works yourself initially then be reimbursed, or have a builder who's willing to wait for most of the money until after completion.

Anyway, that's how my company does it, not sure about lenders in general. Hope that all makes sense?

Oh just realised this is a zombie thread. I fear I may have wasted my breath!

We're in this scenario. We've been advised to remortgage with a high LTV mortgage eg 95% (which has no penalties) do the work and then remortgage again with a better LTV.

Existing lender will only lend on current value not future value after works are done.

The problem with that is if house prices decrease in the mean time, or lending policies change, your circumstances change etc

Plus afaik most lenders at the moment aren't offering 95% remortgages. And the ones that are are very high rates and you'll have penalties to remortgage again after.