Bigger deposit or half a loft conversion?!

[graciefields]

Looks like we're going to have an extra 'lump sum' when we move from our one bed to our two bed in a couple of months time. As we have a baby on the way we want to convert the loft into a third bedroom, but unfortunately the extra money is only enough to cover half of the anticipated cost of this. The mortgage company won't give us a penny more. What would you do, save the lump sum somewhere towards a loft conversion at a later date? So far not sure how we would be able to raise the extra (unless we get a loan maybe? Not sure how that works?). Or increase the deposit amount to keep monthly payments down? We're not the most money savvy so advice appreciated.

How long are you going to be tied in to your mortgage for? It is possible that in a few years when you are looking to remortgage, the value of your home and/or your salaries may have gone up so the bank might lend you more then. Does your mortgage allow overpayments that you can take back at a later date if required? Is there a possibility you may need the money for other things? Are you the type of person who would be tempted to fritter the money away if it's not tied up? How long do you anticipate being in this home? What is the housing market like where you live? All things to consider when thinking about where to stash it!

Thanks for your reply! We're tied into the mortgage for five years, and anticipate staying in the property for 5-10 years. We anticipate that the home will at least hold its value, and is likely to go up, as is in a highly sought after area in a very fast moving market. Possibility my partners wages will go up in the next year. We don't need the money for other things. Not sure about overpayments, probably?

Might it make sense to make it an "offset" mortgage with the lump sum in a nominal "savings account" tied to the mortgage. You then add to the savings over the years and the lump sum is effectively deducted from the amount owed on the mortgage but can then be easily removed when you are ready.

Ooh Fish, I've never heard of that. Is that something I talk to the mortgage provider about?

Is it likely you'll be able to save enough on top to do the loft conversion?
If so I would say make overpayments on your mortgage (most mortgages allow this to 10% of the loan per year) so if you have borrowed £200k you can make £20k overpayments per year. If you have £20k in overpayment fund you will then only pay interest on £180k. You can then add to the the overpayment fund a bit like a savings account and when you have saved enough for the loft, take all the funds out...
I'm hypothesizing because I don't know the conditions of your mortgage but you should check...
One other thing to consider is that in future, because you have a dependent, many lenders will assume you can afford less and so you may be able to borrow less. Also you'll be 5 years older so (depending on how old you are now) you may not be able to take out a 25 year mortgage so again, the "affordable" amount in lenders view drops...
Now might be the time you can borrow most!
Doing the loft conversion will add value and make the flat suitable for you for longer so I would personally take the higher loan and stash the cash with a view to adding to it later...
I think I've pretty much just repeated what PPs said sorry!!

Loving this, wouldnt have thought of it, thank you. Am going to contact the lender and try to figure out whether an offset mortgage or overpayments on the mortgage we've already agreed would be a better solution. Then I guess it's time to start saving!