Can I Remortgage to Build an Extension? A Comprehensive Guide

In the face of a fluctuating property market, the question ‘Can I remortgageRefinancing an existing mortgage with a new mortgage. to build an extension?’ is becoming increasingly relevant. A growing number of individuals are choosing to enhance their existing homes instead of venturing into the unpredictable world of house hunting. This trend is set to accelerate as homeowners contemplate the financial implications of relocating – from marketing their current abode, navigating the gamble of securing a new property, to the unavoidable legal fees and the task of employing a removal firm, among other considerations

That’s not to say that there are no costs in building an extension, of course. One of your initial decisions is whether there is an economic case to be made for building an extension – so, whether the cost of building is less than the eventual increase in the market value of your home. As an article in Homebuilding & Renovating on the 12^th of May 2020 suggests , this may be a difficult case to make, and you might need to look at other properties in your area with similar extensions to see how they are currently valued.

Why Remortgaging for a Home Extension Can Be a Smart Move?

Savings

If you’re wondering how much to spend on your extension, you might already have enough in your savings to cover the costs. As suggested by Right Move, compare the interest rate of your savings with the current low cost of borrowing. You might find taking a loan more cost-effective instead of dipping into your savings.

Unsecured Loan

If your extension project isn’t too costly, consider an unsecured personal loan from your bank or building society. Although the interest rate might be higher due to the lack of security, the loan term is typically short (five to six years). Plus, your home won’t be at risk if you can’t make the repayments.

Credit Card

You’re likely using your credit card for various purchases, so why not use it to finance your extension? This is only feasible if the costs are within your credit card limit. Remember, once you’ve maxed out your card on the extension, there won’t be room for additional expenses. If you choose this option, try to use a card with a zero-interest introductory offer and pay off the balance before the offer ends to avoid high interest charges.

Second Mortgage

Even if your home is already mortgaged, you could consider a second mortgage, also known as a secured charge loan. Your home serves as security for this loan, meaning you risk losing your home if you can’t make repayments on either loan. However, this could be a viable option if you’re confident in your ability to manage the repayments.

Remortgage to build an extension.

• generally considered an attractive form of borrowing to build your extension is by way of a remortgage;

• this allows you to replace your present mortgage with a remortgage, increasing the amount you are borrowing (to cover the cost of building your extension) and, possibly, also extending the repayment period of your loan;

• although a remortgage is a new mortgage – it replaces the one already in place – any lender will consider your history of managing repayments on the initial mortgage;

• provided you have maintained the monthly instalments and made your mortgage repayments when they fall due, this will be to your credit, and the lender may offer a more competitive rate of interest accordingly;

• since the new borrowing is also secured against the value of your home, this, too, helps to ensure that you obtain the loan at a favourable rate of interest.

Many homeowners would prefer to extend their current home rather than submit themselves to the hassle and expense of moving home. Although you have several options for financing any building project, the most straightforward and cost-effective is to remortgage to build your extension.

How to Secure the Best Remortgage Deal for Your Home Extension

When considering a remortgage to build an extension, it’s crucial to assess the best remortgage options to ensure you’re getting the cheapest option while meeting your needs. Many homeowners opt for improvement loans or a refurbishment mortgage to cover renovation costs, but remortgaging often provides cheaper rates and more manageable monthly mortgage payments.

Understanding Your Borrowing Potential and Finance Options

Before proceeding, it’s essential to evaluate your borrowing potential based on your current mortgage deal and borrowing limits. Lenders will review:

• Your credit rating and whether you have credit issues or an adverse credit history

• Your current income, including your annual household income

• Your borrowing capacity, considering negative equityA situation where the value of the property is less than the... or sufficient equityThe difference between the value of the property and the amo... in your property

If you have a bad credit score, specialist lenders or a credit union may offer alternative options. However, a bad credit history can impact your mortgage interest rate and overall affordability. Consulting an experienced mortgage advisorcan help you explore a wide range of remortgage options tailored to your financial situation.

Planning Permission and Legal Considerations for Your Extension

Before securing a remortgage deal, you’ll need to determine whether your improvement project requires planning permissionPermission granted by the local authority for a property to .... Some types of extensions, like rear extensions or a double-storey extension, might fall under development rights, but larger projects often require official approval. An estate agent or expert team can guide you on how your property type and house prices might be affected by the extension.

To ensure a smooth application process, consider:

• Getting detailed plans and official quotes from contractors

• Checking the cost of extension using a construction calculator

• Assessing the ceiling price of properties in your area to avoid overspending

• Consulting a dedicated finance team for mortgage recommendations

Additionally, investing in solar panelsThe presence of solar panels on a property that may affect t... or a basement conversion could increase your property value, helping justify the remortgage and making an informed decision.

By taking a strategic approach and seeking guidance from an independent mortgage broker or Mortgage Advice Bureau, you can secure a fixed-rate mortgage with favorable repayment terms while ensuring your building extension meets both financial and legal requirements.

FAQs –Things to Consider Before Remortgaging for a Home Extension

Q1: Can I use a remortgage to fund my dream extension project?

Yes, you can add the cost of your extension project to your current mortgage balance and apply for a remortgage for the total amount. This process, known as additional borrowingWhat is Additional Borrowing? A Quick Overview When you take..., can be done online, over the phone, or through your local branch. For advice, consider contacting an experienced mortgage broker.

Q2: What is the difference between a first and second mortgage?

A first mortgage is typically taken out to purchase a house outright. A second mortgage, also known as a secured charge loan, is used to finance property improvements such as extensions or loft conversions. The mortgage term and mortgage rate will depend on your agreement with the mortgage lender.

Q3: Do I need to tell my current mortgage lender about my extension plan?

Yes, you should inform your current mortgage provider if you intend to apply for additional borrowing. They will want to know what the extra money will be spent on. If you don’t tell them, your remortgage application may not get approval.

Q4: Can I remortgage my house to pay for a single-storey extension?

Yes. As long as you meet the requirements set by your mortgage lender, you can take out a separate mortgage to fund your house extension. This could be a secured loan or an unsecured loan, depending on your credit history and personal circumstances.

Q5: What should I consider before applying for a second mortgage?

You must ensure that you can afford the monthly repayment for both loans. Your original mortgage needs to be paid off completely before you can apply for a second mortgage. Once that has been achieved, you can borrow up to 100% of the value of your home, depending on your credit score and personal circumstances.

Q6: Will banks allow remortgaging for home improvements?

Most banks allow you to remortgage for home improvement purposes. However, you will need to check with your current lender. Some lenders may offer a cheaper mortgage rate for home improvements.

Q7: How much can I borrow for a home improvement?

The maximum amount you can borrow depends on the size of your home. For example, if you’re planning to extend your kitchen to create extra space, you could borrow up to 75% of the land value plus 25% of the value of all other parts of the house. This means you could borrow £75,000 for a four-bedroom house.

Q8: What do I need to consider before applying for a remortgage to pay for home improvements?

Before you start looking at mortgage deals, you need to decide which type of mortgage you want to take out. There are two main types: secured loans and unsecured loans. You should also consider the repayment charge, your credit score, and whether you have sufficient equity in your current property.