Can I Remortgage To Build An Extension?

Since the various lockdowns, with more people working from home, we have seen several people wanting to extend their homes. And anecdotally, there has been a surge in demand for office gardens too. This is probably why we are seeing more people ask: can I remortgage to build an extension.

If you are thinking of extending, then one option you may be considering is to remortgage to build an extension by raising additional capital. Therefore, this article just explains a little bit more how this works.

What Are Your Options?

Well to begin with, let’s see what options are available to raise capital:

  1. Take A Further Advance

    This is where you borrow money from your lender and will effectively be a second loan.
  2. Take Out A Second Charge

    Instead of taking out an additional loan with your existing lender, you could arrange an additional secured loan through a new lender, assuming your existing lender is happy with this.
  3. Remortgage To A New Lender

    The other option is to apply for a new (larger) mortgage with a new lender.

What is right for you?

There is no solution that is a one size that fits all. It will depend on several factors – such as any repayment charges on your existing mortgage, interest rates applied and of course, your personal circumstances.

Remortgaging

For the purpose of this feature, I am going to focus on remortgaging as an option.

When remortgaging, you will essentially be using equity in your home for this. For example, if your home is worth £400,000 and your current mortgage is £220,000 then you have £180,000 in equity (£400k – £220k = £180k).

Let’s assume you wish to borrow an extra £50,000 for an extension, then you will go to a new lender to remortgage your property for £270,000.


Your Remortgage Considerations

How Much Equity Do You Have?

The more equity in your home, the easier it will be to remortgage in theory. You will need to get an idea of how much your home is worth, as it is likely to have changed since you took out the original mortgage. Zoopla provide a good indication for this.

You may be familiar with the term Loan To Value. This is the ratio of the loan to property value. Using the example above, the current mortgage is £220k and property worth £400k, so Loan To Value is 55%. By borrowing the extra £50,000 would increase this to 67.5%. You will need equity in your home to remortgage to extend or any home extensions . The greater your equity, the greater your mortgage product options. If your current loan to value is just 95%, for example, it will not be possible to do this.

Your Circumstances

Your own circumstances will be important . These include your age, current employment circumstances, credit history and anything that may have changed since taking out your initial mortgage.

You would also need to consider when your current fixed rate ends and the cost of any early repayment charges. Again, an adviser will help with this. In fact, getting any sort of mortgage is complex, which is why it is important to speak to a specialist mortgage adviser.

Your Affordability

If you want to remortgage for a lovely extension, or any home improvement, then you will need to be demonstrate that you can afford the repayments. This is known as your affordability.

Different lenders have different ways of working out how much you can borrow, mainly calculated based upon your income and your outgoings. As a rule of thumb, you might be able to borrow say 4 x your income.

Remortgaging For A Home Extension

If you have equity in your home and can afford the repayments, it is usually possible to remortgage. If extending, have you got a quote from a builder and have you allowed for the fact that it always costs more than you get quoted!

You should also ensure that your local building control (part of the council) would allow the extension but your architect and/or builder will advise there. This is required if you ever try to sell in the future and try to ensure you are able to remortgage before agreeing to the extension and ideally have the money too.

Other Considerations

Self Employed

If you are self recently self employed, this will limit your options. However, there are lots of options for you. And many lenders now will focus on accounts pre-pandemic for the longer term self employed.

Age

Your age will play a factor, but lenders are more flexible these days. Some will allow your mortgage to extend into retirement. But you will need to ensure that you will continue to be able to afford the repayments based on your retirement income.

Get Expert Mortgage Advice

If you want to raise capital to extend your property, there are options available to you. And one answer is that yes, you can remortgage to build an extension. When it comes to remortgaging, often it can be more complex and overwhelming than you think. That is why it is important to speak to an independent adviser to ensure you get the most appropriate deal for you.

In the meantime, why not try our remortgage calculator to see how much you can borrow. All at www.wearemoney.co.uk.