Can we get another mortgage to pay for a home extension?
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We moved into our house five years ago with a 75% mortgage. We now want to build an extension. We don’t want to use our savings as they’re our emergency fund. We’re both working and on decent salaries so I think we can afford to borrow more. The extension will increase the value of the house. Can we get another mortgage for the cost of the build?
Diane Fish of Smith & Pinching responds:
I can’t give you an instant answer on this as it depends on several factors. A lender’s decision would be based on what equity you have in your house that is not already mortgaged. We’d need to explore whether your home has increased in value since you bought it, opening up further equity against which to borrow. You would also need to be able to demonstrate that higher repayments are affordable.
If both equity and higher repayments are possible, you may have three options. The first would be to increase your existing mortgage. You may not get the same rate offered with your initial mortgage, and will perhaps end up paying more and/or paying over a longer term. This may be the simplest route as it wouldn’t involve a change of lender.
The second option might be to take out a second mortgage with a separate lender, known as a second charge mortgage. You would only be able to borrow against equity in your home that isn’t already secured by your initial mortgage. If you are benefiting from a good rate of interest on your initial mortgage, this would avoid having to change your arrangements with your existing lender.
Thirdly, you might consider a complete remortgage. This might not be cost-effective if you have a fixed-term rate on your current mortgage and might result in penalty charges. If not, remortgaging might allow you to get a better interest rate than you currently pay for the existing mortgage loan and the further funds.
Lenders won’t look at the probable increased value of the home when you have completed the extension work. I recommend you get independent mortgage advice to work out which option would be most suitable for you.
Your home may be repossessed if you do not keep up payments on your mortgage. There will be a fee for the mortgage advice. The precise amount will depend upon your circumstances, and the type of lending taken. Smith & Pinching’s minimum advice fee is £700. Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk
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