Remortgaging for an extension
Many homeowners consider remortgaging to build an extension. They do this by taking on additional borrowing from their current mortgage lender or a new mortgage lender. They could either use some of the equity they have gained from making their mortgage repayments and their initialmortgage deposit or they could simply borrow more from the mortgage lender which is known as a further advance.
Most mortgage lenders will expect you have at least a 5% equity in the property before they will consider giving you a remortgage for an extension.
A typical extension may cost anywhere from £40,000 to £50,000 based on how big the property is and this is why many homeowners find remortgaging for an extension the most suitable option to borrow such a large sum.
Building an extension to your house is considered to be permitted development so you usually won’t need any planning permission to carry one out and this makes getting a remortgage for an extension more straightforward.
You should check if the extension you want to build requires any approval from your local council as some extensions end up needing to be approved.
Doing things the right way and getting the right paperwork will not only make it easier for you to get a remortgage for an extension but it will make it much easier for you to sell the property in the future.
Rmortgaging for an extension on a buy to let property
It may be very possible to raise money for an extension for a buy to let property by remortgaging the property.
Most buy to let mortgage lenders will want to see what the future rent will be charged on the property after the extension has been added.
The buy to let mortgage lender will also assess your personal circumstances to ensure you are creditworthy for the remortgage you are seeking.
Different mortgage lenders will use different affordabloty assessment requirements but in general the rental income will have to cover at least 125% of the monthly mortgage repayments assuming the mortgage is charged at 5.5%.
If you are a higher rate taxpayers, this increases to 145% or 160%, to reflect the fact you will face bigger tax bills due to the new tax bills that have been ntroduced which affect buy to let investors.
If you are a portfolio landlord then the mortgage lender may want to see details relating to your other property to ensure you are not overstretching yourself.
Remortgaging for an extension if you have bad credit
Remortgaging for an extension if you have bad credit may indeed be possible but the buy to let mortgage lender will likely want to see what type of bad credit you have and may assess every remortgage for an extension applicant on a case by cases basis.
If it was a CCJ which was satisfied and is a certain age then some mortgage lenders may be willing to lend. Other mortgage lenders may lend if the CCJ was a maximum amount.
When looking to get a mortgage with bad credit the requirements from different mortgage lenders will differ and a bad credit mortgage broker may be able to assist you in getting a remortgage for an extension.
Bad credit could include:
A debt management plan
A home reposession
Missed credit repayments
Remortgaging for an extension if you are self-employed?
When remortgaging for an extension if you are a self-employed borrower you may have to prove that you can maintain your mortgage repayments to the lender as your salary is reliable, stable and you have not had any significant gaps of unemployment which cannot be explained.
As a self-employed borrower, you will likely be asked to provide the below documents:
Bak statements for 3 months
Your day rate and proof if you are a contractor
Your P60 tax return
Should you remortgage for an extension?
You may not necessarily have to remortgage to get an extension done but if you choose to remortgage to get an extension done on your home then you may want to consider what the cost of additional borrowing will be to you and if this cost is less than the value gained from carrying out the extension. It could be that the properties value rises after an extension or maybe not.
A remortgage for an extension may also be a feasible way to go about things when you consider things if you are confident you could overpay your mortgage and reduce the balance you are being charged interest on shortly after the work has been completed on the extension. This could be possible if you want to sell the home right after the extension is completed. In this case, you should ensure you are aware of any mortgage overpayment limits which the lender may put in place when you remortgage.
A remortgage for an extension may not be the only option you have. In fact, you may be able to use a bridging loan to get extension work carried out but you may want to seek the advice of a mortgage broker as bridging loans may be much more expensive than a similar mortgage over the same time period. Bridging loans are also usually expected to be paid back within 12 months so if your extension work may take longer than this then a bridging loan may not be suitable for you.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.