Please or to access all these features

Add post

Watch this thread

Save thread

Start a new thread

Flip thread

Hide thread

My feed

Active Unanswered threads

Getting started FAQ's

Unanswered threads Acronyms Talk guidelines

Hide shortcut buttons

Talk

Property/DIY

Join our Property forum for renovation, DIY, and house selling advice.

Flip

Original poster

Financing extension with a loan?

17 replies

marzipancustard · 25/10/2015 07:29

DP & I love our house - but it needs a bit of reworking to make it more suitable before we have little ones. We've had some architects round & now know we would need to do a pitched roof with dormer window instead of the flat roof we'd hoped for (it's a second storey extension over an existing single storey) which may double the cost. We just don't have the cash to do that - but if we don't extend we have to move.

Would we be silly to consider borrowing roughly £15,000? We've got a mortgage but not tonnes of equity as we only bought 18 months ago. I'm self employed and DP is employed so it would be in his name. I've found some very low interest deals like 3.5% fixed over 5 yrs - which seems ideal! This way we can crack on without having to wait 5 yrs to save (which also means waiting to TTC).

Is this a terrible idea? Looking for outside opinions as we've never done anything like this before!

OP posts:

Squeegle · 25/10/2015 07:32

Can you add it to the mortgage? The interest rate would be better that way, and it's logical that it should enhance the value of your house in the long run.

RoganJosh · 25/10/2015 07:35

Are you confident you can pay it back over the five years? I don't see why not if so.

whiteagle · 25/10/2015 07:40

Most people do extensions on borrowed money rather than have all the cash- we are, but have done it via an increased mortage.

I would explore the mortage option first before going down the loan route personally. Also make sure you have 10% in accessible money on top of what ever cost your builder quotes - you will need it!

Original poster

marzipancustard · 25/10/2015 07:49

We can't borrow more on the mortgage as I'm self employed & wouldn't meet the affordability checks if they ran them (not enough accounts) - we're confident we could meet the repayments even after considering lower income due to little ones finally arriving.

OP posts:

MrsLeighHalfpenny · 25/10/2015 08:01

If you don't meet the affordability checks to increase your mortgage, it's unlikely you'll meet them for a loan either. Could you save up what would be the monthly loan repayments for a couple of years and pay for at least some of the work outright?

Original poster

marzipancustard · 25/10/2015 08:13

The loan wouldn't be in my name but in DPs who is employed & earns twice the amount of the loan. We have some money to put towards the work it's just not enough for the extra costs of the pitched roof.

OP posts:

Bearbehind · 25/10/2015 08:26

Borrowing £15k when your DH only earn £30k and you don't earn enough to be considered on the loan is pretty risky.

RNBrie · 25/10/2015 08:34

In your position I'd crack on with the ttc and the saving. Babies don't need much room and generally share your room for at least 6 months. Then in a couple of years, you'd have saved half the amount, can add the other half to your mortgage and get the work done before you have dc2

Original poster

marzipancustard · 25/10/2015 08:41

I earn plenty I just don't have 3 years of accounts to meet the ridiculous standards of banks :(

OP posts:

tigerdog · 25/10/2015 08:51

Well we did it, and no regrets. I think the two key concerns are affordability and job security - if you are confident you can manage it even if circumstances change then it is worth considering. Although mortgage rates may be lower, that's not a given if you have little equity and over the life of the mortgage I'm sure it would cost more to borrow that way. Also, if it adds value to your house then you may get a better rate when you next remortgage.

We borrowed a sizeable sum over three years at 3.5% and overpaid as often as we could to reduce interest. Everything is now paid off and our house is worth over 50% more than we paid for it, according to the recent valuation so it has defintely been worth it. We had to do the work, as our house was uninhabitable when we bought it but, like you, the cost was higher than builders had initially indicated, so our savings weren't enough to do everything and we knew that we wanted it all done at the same time.

Bearbehind · 25/10/2015 08:56

In that case- If you are confident that you can meet the payments and you'd be happy with the house once you've done the work then go for it.

My concern would be that you earn the majority of the income and how would that be affected if you did have children.

MrsLeighHalfpenny · 25/10/2015 09:43

I work in a bank. Affordability checks have been tightened up. I don't think you'd be granted a loan for 50% of DPs salary. They may take your earnings into account though.

Original poster

marzipancustard · 25/10/2015 10:05

MrsLeigh that's interesting - I did the eligibility check on the MSE site & it came back 90% eligible is that not a reliable measure? I'm a convert to the church of MSE & generally take it as gospel!

OP posts:

LBOCS2 · 25/10/2015 10:10

If you can borrow it then there's no reason you shouldn't finance the extension that way.

Once the work is finished, you could consider having your property revalued to take into consideration the work you've had done, then remortgage for your original amount + the loan. If your property value increased because of the works, your LTV % may drop and you could release it and pay less on your mortgage even though you're borrowing more. That way you could pay back the loan much faster and cut those additional payments out before you TTC.

Original poster

marzipancustard · 25/10/2015 13:21

LBOCS2 That's kind of my plan as by then I should have sufficient trading history to meet any affordability calculations they need to do although I do want to TTC asap I don't think this is the kind of work a little one would enjoy being around (have to demolish and rebuild part of the house!)

OP posts:

TheUnwillingNarcheska · 25/10/2015 18:09

Getting an extension done takes time, from the plans, the planning process, any amendments, builders being available and weather dependent.

It would be sod's law that you get pregnant in that time frame so you will have to consider it.

We have gutted a house from top to bottom with a toddler and then a newborn. Not the best timing but you work round it.

Plan for at least one room if not more that can be taped off as a sanctuary whilst the work is taking place.

Good luck.

stilllovingmysleep · 26/10/2015 06:51

We recently decided not to do a kitchen extension at the moment for this exact reason--because it would have to be financed via a personal loan (couldn't be added to the mortgage at this stage). We decided that saving for a year, as our income increases (which it is) & eventually adding the loan to the mortgage would be much wiser. Personally I hate the idea of having to spend so much of my money each month on a loan repayment. It feels much better / safer to use the same amount on savings. But that's just my view. Obviously if you feel you can afford it, it's worth doing, but be careful. If it were me, I would wait some months or a year & do it when I've saved a substantial amount & then only take a smaller loan.

On another note, I've heard from a financial advisor that affordability checks are much less in depth when it comes to personal loans, compared to mortgages. Not sure if that's true or not.

Flip