Will we need a 20% Deposit to fund an extension?

S

SomeBloke

Registered User
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Hi,

Myself & my wife have just bought a house. We currently have a 90% LTV Mortgage and the intention (once we have planning permission) is to borrow more to fund building an extension.

We are first time buyers, and the cost of the extension along with our current mortgage commitment will be within 3.5 times our combined salary, so I am wondering if the new regulations are applicable in this case? Will we need to stump up 20% of the extension cost?

Thanks
 
So, could I use the Home Improvement Loan to fund the build, and when complete, then re-mortgage so we are only servicing one loan?
 
It would depend on the value of your house after the extension. Spending €25000 won't necessarily add €25000 to the value of the house.
In case you can't remortgage you'll need to be sure you can service the home improvement loan at higher interest rates.
 
Re mortgaging might not be that easy, some banks give 90% on a purchase but only up to 80% on a refinance so unless you add a lot of value with that extension you may not meet criteria. Hindsight is marvellous but it would have been better to include the extension cost with the initial purchase price and borrow 90% of that, the extra would then have been retained by the lender until the work was completed.
 
Sorry i should have added that the extension isn't just a kitchen, more along the lines of 1,500 sq.ft so not really something we want to / or could afford to pay back at 8.5-9% APR (over 7 to 10 years), on top of the current mortgage.

Strange thing is, the Financial Adviser in the Bank was pretty confident that there would be no issue in topping up our mortgage provided we did no exceed the LTV ratio, until that is the other day when he mentioned we might be subject to the 20% rule??
 
Monbretia said:
Re mortgaging might not be that easy, some banks give 90% on a purchase but only up to 80% on a refinance so unless you add a lot of value with that extension you may not meet criteria. Hindsight is marvellous but it would have been better to include the extension cost with the initial purchase price and borrow 90% of that, the extra would then have been retained by the lender until the work was completed.
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At the time of buying the house, we knew an extension would be needed but had nothing prepared in terms of layout drawings, associated costs, etc so we had nothing to put a value against.
 
You're basically looking for a 100% mortgage or even more given the likely cost of the huge extension you're putting in. That isn't going to fly at all. Wait and save is the only real option.
 
Are you sure you meant an extension of 1500sq ft? That's bigger than a lot of houses!
Do you have an idea of the costs involved? That'll quickly tell you how feasible it will be to remortgage.
 
Yep, 1500sq.ft, the existing house is only 600sq.ft, and we are aware of the costs.

dereko1969 said:
You're basically looking for a 100% mortgage or even more given the likely cost of the huge extension you're putting in. That isn't going to fly at all. Wait and save is the only real option.
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The thing is we are not looking for 100% of the extension cost, merely 90% in line with our current mortgage, which we would have the capacity to re-pay at mortgage interest rates.

Ignoring the 'can we afford it' and 'save' debates, the big question I am asking is do the new regulations impact upon our situation (I do appreciate Monbretia's insight that some lenders will only provide 80% on a re-finance), but from speaking to the FA in the bank, we orginally only needed 10% of the extension cost, which since yesterday could now be 20%?
 
SomeBloke said:
Yep, 1500sq.ft, the existing house is only 600sq.ft, and we are aware of the costs.



The thing is we are not looking for 100% of the extension cost, merely 90% in line with our current mortgage, which we would have the capacity to re-pay at mortgage interest rates.

Ignoring the 'can we afford it' and 'save' debates, the big question I am asking is do the new regulations impact upon our situation (I do appreciate Monbretia's insight that some lenders will only provide 80% on a re-finance), but from speaking to the FA in the bank, we orginally only needed 10% of the extension cost, which since yesterday could now be 20%?
Click to expand...
I don't think you understand how it all works. The mortgage has to be based on the value of the house if it's to be a mortgage (the bank gets the house if you default) - you're looking (if you want to re-mortgage) to get a lot more than the house is currently worth (unless you bought it at a huge discount) so you are going for more than 100% of the value of the house.
So you'll need to get a separate loan for the renovation and then re-mortgage afterwards, which means you're borrowing at a much higher rate. You either misunderstood your FA or s/he's an idiot.
 
As above, it's nothing to do with 90% of the renovation cost, it is all depends on the finished value. The value when you are buying is the purchase price, the value when remortgaging is whatever the finished house is going to be worth according to the bank's approved valuer which may or may not be the sum of the purchase price plus renovations, you could be lucky and it could be more!
 
dereko1969 said:
I don't think you understand how it all works.
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No I don't, hence why I'm here.

dereko1969 said:
The mortgage has to be based on the value of the house if it's to be a mortgage (the bank gets the house if you default) - you're looking (if you want to re-mortgage) to get a lot more than the house is currently worth (unless you bought it at a huge discount) so you are going for more than 100% of the value of the house.
Click to expand...

I thought the money is only drawn only on signed off works (interim/stage payments) so if i did default, the value would still be there between the old house and what is built of the new build?

Anyway thanks for you help, will have a further chat with our FA and see what our options are.
 
It is only drawn in stage payments but it all hinges on the valuation put on the finished house to get to that stage.
 
Thanks Monbretia - very helpful. And apologies, I'm a bit loose with my terminology - after you corrected me, I did mean 'value' when i wrote 'cost' (those half dozen times :)).
 
Let's go back to basics then. You bought a 600sq ft house with a 90% mortgage. You want to extend it by 1500sq ft & want to know if you can remortgage it to fund the development & you know the costs of the development.
You really need to post some financial numbers before you can expect meaningful answers.

How much did the original house cost & when?
How much will the 1500sq ft development cost?
What would be the expected value of the house when completed?

On the face of it without actual numbers, a 1500sq ft development onto a 600sq ft house would probably bring the LTV way over 100%. Are the neighbouring houses closer to 600sq ft or 2000sq ft? That will help to value the future desirability of the extended house.
 
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