Big renovators - how did you fund the cost? Did you hold deposit back?

[sellotape12]

Anyone be willing to share how they funded their extension/renovation where it was significant? We trying to figure out some hypotheticals. This is London so prices are horrid i realise

• assume we sell ours at £900,000
• we have £360,000 left owing in mortgage but we’d like to port it as it’s a great rate until 2027.
• purchase price of new place is £975,000
… but ideally needs £150,000 extension

So would you hold the capital back from your deposit to fund the renovation?
Is there any other way to do this that I’m not seeing? We only have enough in our savings to cover the stamp duty so forget that!

It depends on how much your cash savings is earning v interest rate on the ported mortgage. Usually the extra you add to the mortgage will not be at the ported rate so at the moment that extra 150k will be charged at a higher rate. How much are your savings earning you and would you have anything left as an emergency fund if you used that instead of taking on an extra150k at a high rate ?

Oh sorry I just noticed you said don't have any savings. In that case I wouldn't be considering a bigger mortgage. Better to hold off the extension idea until you are back on your feet.

DH is in the trade and works on these sorts of projects. Most of his clients buy with a 2 or 3 year fixed rate mortgage and a low deposit (~20%) requirement. They use the equity from their previous property sale to fund the renovation, often including the cost of renting elsewhere. Once the works are completed, they re-mortgage at the new valuation, which hopefully means they can have a much lower LTV second time around. Risky in a precarious market like this one, but if you can afford the monthly mortgage payments it doesn’t really matter, especially if you’re living in a house you have expanded and love.

Taking out a second mortgage on a house in which you already have equity is another way.

More than a few of DH’s clients get their parents to pay builders and suppliers directly for the renovation, I suspect as a way of avoiding inheritance tax later down the line. Perfectly legal but your own moral mileage might vary.

Yes, we know that my husband’s parents probably have some inheritance but don’t think that’s a conversation we necessarily want to open with them. I don’t think it’s that much anyway. But yeah seems sort of sensible to do that and I can get why people do it.
The first option is probably how would be able to do it. Then what comforting to know that this is how other people do it too.

I’m trying to work out if there’s a way in which we borrow the topup mortgage for two years then when our existing one runs out in 2027 we re-mortgage one sum on the newly renovated house. Hopefully by then interest quite as bad as they are are now(!)

can’t tell if there’s another more sensible option that I’m not looking seeing too…

Yes, our cash savings will only cover the stamp duty. When you say you wouldn’t be looking at a second mortgage until we’re back on our feet what did you mean by that, for clarity? You think maybe this is just a silly idea and we can’t afford to do it? Such big decisions so canvassing all opinions! I can’t see another way in which we would ever be able to move to a bigger place otherwise.

Of course, the other option is we stay where we are, pay down the mortgage on our current house while it’s at low rate until 2027, and then maybe we try move again within 10 years? The only thing with that is we’re both turning 40 within the next 12 months, so not sure we would be wanting to do renovations and remortgage in our 50s? So hard to decide.

Of course, the other option is we stay where we are, pay down the mortgage on our current house while it’s at low rate until 2027, and then maybe we try move again within 10 years? The only thing with that is we’re both turning 40 within the next 12 months, so not sure we would be wanting to do renovations and remortgage in our 50s? So hard to decide.

The other thing to consider is pensions. If all your savings are tied up in house equity then there's only one way to release those for your retirement.
So - will you see the house as your forever home and will you have sufficient other savings and investments to be able to live there in retirement (council tax alone 🤦🏼‍♀️) ?
Or, are you making the move now to a fixer upper with a view to making a bigger return on investment and cashing in, in time for your retirement.

yes we did it by keeping back equity and having a bigger mortgage, ours were meant to cost £150K and ended up over £200K though so there was also quite a lot of money going in from our monthly earnings (for the 8-10 months it a ongoing) plus needed to use credit cards/ overdraft etc. most projects like this go over budget to be fair!

Trying to understand what your question is. If you port your mortgage but need a bigger mortgage you have to use the existing lender for the additional mortgage lending, which will limit your choices. Your existing 360k mortgage stays at the same terms, including length, so although you keep a good rate, you lose a chance to extend the length to reduce the monthly payments. On top of that you need an additional 225k or more borrowing at today's interest rates. LTV will be worked out on the property purchase price so you'd be at about 60%, so you'll still get decent interest rates but not the best. When the extension is finished you could potentially remortgage based on the increased value, so your LTV would be lower and you might get a slightly better interest rate. At this point you'd probably have finished the good rate on the ported bit, so you'd probably just remortgage the whole lot with the whole market to pick from at this stage.

Yes, precisely this. Was just checking that this was the way through.

Or… we by the house and port our current mortgage without an additional topup mortgage since the house we’re buying is a very similar price (and I think we could cover the £40k difference with cash savings or borrow from in-laws). And then maybe we wait until our current mortgage runs out in January 2027, then re-mortgage once to release funds for a renovation then. This hypothetical is based on interest rates softening a bit, but the downside I suppose is building costs and labour might have gone up by 2027. Plus not being able to start the renovation until 2027.

Very open to any blindspots I’m missing

I think what you need to do is work out how much borrowing the “top up” mortgage (with your existing lender) is going to cost (monthly repayments AND overall cost), and then work out whether you want to do the works straight away or wait for a bit. It would likely be cheaper to wait but depends on whether you can live with the house for the next couple of years (obviously you’d hopefully be able to do the worst of it or spruce it up in the meantime). I’d imagine that if you phone your lender they can give you an idea?