Funding an extension, need to remortgage, need advice.

[sweetkitty]

Our desperately needed extension is about to start but we don't have enough money to finish it do will need to remortgage to finance it.

For example, the extension is going to cost at least 50K, we have 25K in savings, I don't think we have enough equity in the house to borrow the money just now so will have to wait until the build is in progress. Worse case scenario is we use 0% interest credit cards to get it built then remortgage.

When do you remortgage? When it's wind and watertight?

We probably have about 15-20K in equity, the extension will probably add about 60K to the value of the house at least.

Not even started and I'm stressing!

pattypooped last year was last year though! This year prices are falling and banks are not lending. Check first! Credit cards is v dangerous

And don't forget in your own valuations that the difference between 4 and 5 bedrooms is often negligible.

'Last year was last year.'

We remortgaged 9 months ago.

You have to be very confident of the final price of your property. I know our property market inside out.

That said, yes, the market can change. That's a risk. You also need 15% leeway for unexpected costs.

Your othe roption is to get a mortgage with 'Build Store.' They specialise in self-builds but can give mortgages in situations like this. The rate will be higher but you can switch to a high street lender once it's built.

Yes an extension of that size nearly always over runs the budget. Even 9 months ago was better than now and what is coming. I still think now is not a time for risks.

I am also doing an extension. Estimate is 100k so I will budget for at least 125k. I am prepared to use 50k of my savings and I can liquidate another 25k for contingency if I have to. The other 50k will have to be raised through remortgaging.

If the bank/building society won't cooperate then I will wait until I have saved the total amount. We do not intend to move for at least 20 years so resale value is not important, but I would not use all my savings or mortgage myself up to the hilt to finance this. The stress would not be worth it to me.

Sweetkitty I could never do what you are proposing but I am risk averse. Possibly around 10 years ago when I was younger and house prices were rising I might have been tempted, but not in this market. I would worry about negative equity and having nothing in the bank to fall back on. Potential unemployement would also concern me now.

£25k (in mortgage terms) is not a huge amount of money. If the bank are refusing to lend it to you now, your finances are not such that you can rely on them changing their minds in 6 months time. What if the work overruns (very likely) and the costs come in at more than £50k? You will need to borrow far more than £25k while presumably the increase in the houses value will remain as predicted?

Remember to add 20% VAT onto quotes so 50K works will actually cost you 60K. I would recommend a contingency fund of say another 20%. We have just finished our build and we used up all of our contingency for a better finish. (I still had to rein myself in - could have spent a huge amount more very easily had I the budget!)

Yes I've accounted for VAT and contingency.

Wish I had a rich relative to borrow from.

We have to do it we cannot live in this house the way it is just now, the only other option is moving house which means more.

50k inc vat and contingency for that size extension is v cheap!

Isn't there some sort of "cap" for want of a better word on the value of houses in a particular street / area? You can't for example spend £100k on renovating a house in a street where the average values are £120k, and turn it into a £220k house. You'll only ever recoup a portion of your investment.
What I'm trying to say (badly) is - are you sure the work will add £60k to the value of your house? It's not always proportionate to the actual cost.

You CAN manage with the house as it is - hell families with 8 kids lived in one or two rooms not that long ago. You just don't want to.

Go ahead but bear in mind you might not be able to remortgage, you could be paying off credit cards at an extortionate rate in a few months, you could end up not being able to pay your builder who takes you to court, you could get a ccj and you could lose everything.

And in that worse case scenario you will end up with a lot less than the current 2.5 bed house you have now.

Lots of negative responses.

It sounds as though you know your stuff. The nail biting bit is when the surveyor comes back.

I actually think it will be fine. Do come back and tell us. Good luck!!

Yes of course we can manage, if DH and I move into a sofa bed downstairs. DS is 2 and still in a cot which he's growing out of rapidly in with us. DD1 & 2 have bunks in a smallish room, no space for another bed or a triple sleeper, DD2 sleeps in a toddler bed in the box room as there's no room for a single bed, there's literally inches between her bed and her furniture she cannot play

We only need the extension to add 25K of value as we have 25K saved up. we also have at least 15K equity in the house and that's me taking 10K off the estate agents valuations last month.

So the advice is unless I want to end up bankrupt, destitute and living in a bedsit I had better just move house and borrow an extra 100K more (which the banks are happy to lend us) rather than have a short term loan of 25K?

Why are the bank happy to lend you £100k against a different property, but are refusing £25k against your current one? Does that not tell you they have no faith in your projected increase in value?

It's not that Floggingmolly, it's that the bank won't lend more than the house is currently worth, even though their salaries would allow a bigger mortgage against another property.

And given everything you've said OP, I might be tempted to follow the same route, but would certainly explore options with my bank first. It may well be that your plan is the best one and will work out, but it does carry a risk and the more you can do to minimise obviously the better.

We haven't spoken to the bank yet (funnily enough it's the one my DH works for), they won't lend for a project that isn't built yet.

They will lend us an extra 100K based on DHs income but that's for a house actually valued at.

If I go into the whole sage the extension thing started over 3 years ago, we got an architect to come and draw up plans, he estimated the extension would cost 45-50k, we went through all the planning etc got quotes and they were 75-80K, we couldn't afford that. We looked at moving house, did some decorating, got a new cheap bathroom, got the house valued but then when we stated looking it was an extra 60K for what amounted to a box room, garage and utility. So we thought why do we not scale down the extension, our original architect died so we needed another one so he said we could do it for 40-45K. But we had to go all back through planning etc another 2K. Now the cheapest quote is just under 50K (includes vat) the builder is a friend of my Dads, my Dad is doing some of the work for us too, the builder done work for family too. I'm not having a new flash kitchen or bathrooms just bedrooms for the DC, I will have a utility room but won't get it fitted out until we have the cash.

I honestly could cry already over all of this I don't actually believe this extension will ever happen.

Have you looked into personal loans? There must be good/better rates out there at the moment.

Also, if you do take on more unsecured debt (e.g. the credit card route) it might be worth taking out some form of employment insurance for the period until you can remortgage.

Please keep some savings back. You never know what can come up (unexpected repairs, injury, unemployment etc) unrelated to the extension. I'd prefer to take out a bigger loan and keep an emergency buffer in an accessible account.

Even if you don't think your bank will lend more now is probably worth making enquiries and discuss what may be possible.

If you earn enough to be approved for a much larger mortgage on a more expensive property I'd definitely look into the personal loan option, starting with your current bank. it would definitely be preferable to credit cards, as you'll know exactly how much you're paying each month and for how long and interest rates would be much lower. The main thing is checking that the monthly payments are affordable on your current income. It's a pretty quick process too often. once you've done the work you can revisit the mortgage situation and either extend to pay off the loan or rely on any increase in value of the house to get a better rate.

I'm probably biased because I'm planning similar, but I don't think stretching yourself financially now is necessarily risky. Only you know your family's financial situation and can make a judgment on what the likely risks are over the next few years. if you take some risks now that you have worked out are manageable for you then in the long term you will have the house you want for your family for less than the cost of moving, particularly once you as in one off costs such as stamp duty, estate agents etc.

The extn costs do seem very cheap - have you worked out the sqm increase and then cost per sqm? I would second the contingency and additional costs..an example could be - extra radiators in the new rooms means boiler needs to be revamped.

I think getting advice about what's likely is very sensible however. Good Luck, it is a seriously stressful situation and I didn't enjoy our build project towards the end.

In a way, I think you are stressing yourself out even more by coming on Mumsnet and posting your situation.

If I had posted similar last year (before our £160k extension for which we had £85k in the bank) then I'd have been scared off with all the nay-sayers to the point I'd have been even more worried and stressed than when I first posted.

I am now living in the 'finished' house for which we had 100% done our homework, planned with meticulous detail (yes, contingency, VAT - right down to light switches) and it worked out exactly as we expected.

What most people who have never done this don't realise is that you have to be incredibly organised to the point of having thought out all the possible things that might go wrong.

You sound to me as though you have done your homework and the project you describe sounds perfectly do-able, perfectly reasonable and I truly believe you will be living in it this time next year.

Now go and pour yourself a large glass of wine woman and stop stressing.

You have to budget for the completed house dropping in value by 30% over the next five years.
Are you able to sit that out?
If not, scale back your plans.

Houses in the UK are still overvalued by over 25%

PS
four years ago I spent £135k on a humungous extension
and it was worth EVERY penny

Yes I've thought about things like the boiler (3 plumbers have said it is fine). It's taken over 3 years to get this far there's not much we haven't thought of.

This is our forever house we are not looking to make money from it, all we want enough space for our family.

Going to sort things out next week, get a decent valuation on what the completed house would be worth. DH going to make ome enquiries at work and with the bank.

remember that if you go down the eco route - solar panels, TRV's thermal store etc, then all of the relevant work attracts VAT at 5% not 20% ....

We are about to do a £300k extension/renovation and only have £30k saved, however have remortgaged with Handelsbanken and they are funding the first phase on a mortgage where money will be released as the build progresses. This could be an option for you. The second phase should be funded by the sale of another property, though we can't bank on it in this market, however that stage can wait until funds are available. I think it's unwise to start the build without secured funds. There's enough stress without financial stress too.