Everything You Need To Know About Remortgaging For An Extension
*This is a collaborative post on remortgaging for an extension
Most of us grow into the space we have at home, and needing more space is a constant battle, especially if you have kids. Moving home can be expensive when you consider solicitor fees, stamp duty and the physical moving costs. Plus you may just love the home you’re in, but need more space. That’s why remortgaging for an extension may be a better option.
Me and Luke have already said if we do have kids this is the route we’d look to go down. We could probably get a double story extension for our home which would give us a lot more space.
Remortgaging for an extension may seem like a daunting process but there are some important things to consider and watch out for. I’ve done a lot of research into the topic so we know for the future, but it’s not something we have physically done ourselves.
How remortgaging for an extension works
The process involves replacing your existing mortgage with a new one while borrowing additional funds to finance the extension. Doing this will allow you to take advantage of any increase in value your property has had since you bought it. So if your home has increased in value you’re extracting some of the profit to improve the property which will then add more value.
You can remortgage for other home improvements as well as an extension such as a kitchen remodel. Many homeowners choose kitchen remodeling by Cabinet IQ to refresh the space while adding value to their home. By remortgaging you’ll be able to spread the cost of the extension over your mortgage term making it more affordable in the short term.
For example if your mortgage has £200,000 left you could borrow an additional £100,000 for the profit and then take out a mortgage for £300,000. Although bear in mind getting a remortgage to free up money for the project isn’t a guarantee. It’s totally up to the bank!
Why remortgaging for an extension may be right for you
- To add value to your home- by extending your home you can create additional space such as an extra bedroom, office or larger kitchen dining space. These improvements will increase the value of your home and make it more appealing to potential buyers in the future. In some cases, homeowners may also invest in essential structural improvements such as house leveling to maintain the stability of the property and protect its long-term value. You do need to weigh up how much the project will cost vs how much value it will add. You may spend £100,000 but it may only add £75,000 of value.
- To create more space- this is quite a common one and extending a home means you can stay in the property you’re in but get the additional space you want/ need. If we extended we’d be adding an additional bedroom upstairs and extending our third bedroom. And then downstairs we’d create a gym/ playroom and a library.
- You avoid moving costs- as I mentioned above moving home is expensive (and stressful). And it may work out cheaper to make changes to your current home than moving.
Things to Consider Before Remortgaging for an extension
Remortgaging for an extension has lots of advantages but it’s important to consider all options.
Affordability
Before you look into remortgaging it’s important to assess your financial situation and check you can afford the additional borrowing. With mortgage rates high at the moment chances are your rate has already increased without additional borrowing. If you borrow more, you’ll owe more, meaning your monthly payments will continue to rise.
Consider your current income and expenses and whether they’re due to change, and how this may impact your ability to pay the mortgage repayments. You may also need to consider your mortgage term as if you owe more you may end up paying it back over a longer period. So it will take you longer to become mortgage free.
If you’re considering remortgaging for an extension it’s worth seeking financial advice from a mortgage advisor who can look at your financial situation and help you understand the affordability.
Loan-to-value ratio
Loan-to-value ratio (LTV) is the percentage of your property’s value that you’re looking to borrow. The lower the LTA the less risky it is for lenders. For example we had an LTV of 85% when we bought our property as it lowered our interest rate considerably compared to the 87% we were initially going for.
Therefore, if you’re looking to borrow a large amount for your extension you’ll need to ensure your LTV doesn’t raise too much.
Your properties equity
It’s not just anyone who can apply for a remortgage, you’ll need to have sufficient equity in your property. Equity is the difference between the current market value of your property and the outstanding balance on your mortgage.
Lenders will have specific requirements as to the minimum amount of equity you must have to qualify to remortgage. For example if your home hasn’t risen in price much you may not be eligible.
Credit score when remortgaging for an extension
Much like any financial application, lenders will look at your credit score. They’ll want to see responsible financial behaviour to secure a good remortgage deal.
If your credit score has dropped since you took out your mortgage or you’ve recently taken out loans etc, then it may be harder to secure the right deal.
The extension build
Going through an extension is a huge project and cause a lot of disruption at home. Extensions take months to complete, and for the project you may be altering rooms in your current home meaning they’ll be out of action. Homeowners may also need to address structural concerns beforehand with specialists like Xpert Foundation Repair to ensure the property is ready for major construction work.
For example if you’re extending your kitchen your entire current kitchen may be unusable during the build. So consider what you’ll need to survive the build.
The process of remortgaging for an extension
If you’re sure extending is the route you want to take then here’s what to expect.
Consult a mortgage advisor
It’s advisable to seek professional guidance from someone who knows the market. They’ll be able to help you understand the options available, look at your financial situation and guide you along the way. Be sure to ask all the questions you may have.
Find out the cost of the extension
Once you’ve got an idea of what’s feesible it’s time to get an understanding of the cost for the extension.
Get quotes from reputable builders or architects, ideally ones someone you personally know has used. Make sure you look up reviews and get multiple quotes. By getting a few different quotes (both of time and money) you’ll be able to make a decision and know how much you’ll need to borrow.
Apply for the remortgage for an extension
Once you’ve selected a lender for your remortgage get all of the documentation you’ll need. Everything from ID and proof of income to bank statements and current mortgage statemnents.
If you use a mortgage advisor they’ll be able to help you through this process and talk you through the interest rates and any charges which may come up.
The whole process can take anything up to a few months so you’ll want to start the process early enough before you’d want to start the work.
Valuation
Before your remortgage application is accepted the lender will arrange a valuation of your property to find out the current market value.
They’ll also do the necessary legal processes to complete the remortgage.
Releasing the funds and building
Once your remortgage is approved the lender will release the additional funds you can start the project.
Don’t pay your contractor the whole price up front, so ensure you keep the additional funds in an easy access account, but ideally one that may give you some interest (especially if the build time is quite long).
As soon as the remortgage is approved, lock in the builder you have chosen for the work so you have a price agreed. If you leave it too long prices may go up and your additional funds may not cover the whole project.
Have you ever considering remortgaging for an extension?
9 responses to “Everything You Need To Know About Remortgaging For An Extension”
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I never thought of remortgaging to get money to finance an extension, this is an amazing way actually. Thank you so much for the great insights.
These are all such important things to remember I used to deal with mortgages when I worked in banking and so many people did not take these things into consideration
Everyone needs to read this. Remortgaging can be an intensive and confusing process if you don’t understand it.
This is great and super helpful info for anyone looking to buy! It can seem daunting so all of the info here is really great! Thank you!
This is such a helpful post, especially for those of us feeling the squeeze of needing more space at home. Remortgaging for an extension is a smart alternative to the expenses of moving. The potential for a double-story extension to create extra room is exciting. Thanks for sharing these insights and considerations! #HomeExtension #MoreSpace
Yeah it is a really exciting prospect to have the extension, I don’t know how long it’s going to take but one day x
Ooh definitely a lot of things to know and considering..it’s a big leap especially in this economy. Thanks for sharing this info!
This is all important to be aware of. We will be looking to remotgage at some stage to extend a property too. The property value has gone up a considerable amount which is great and hopefully we will have it approved.
We’ve only had our property for a few years so while I think it’s gone up, probably not quite enough yet x