How to Fund a Family Extension and Keep Your Mortgage Deal
How to Fund a Family Extension: A bedroom for one baby did the trick – but not for two school-age children who each need a bedroom of their own. Throw a parent working from the dining table and a kitchen that’s too small to seat everyone at teatime into the mix and an extension begins to make a lot of sense. If you fixed your mortgage at a low rate a few years ago, the most straightforward way to finance the extension has a problem.
Another method is a second charge mortgage. That runs on an equal footing with your current mortgage, so your first mortgage remains as it is. But how much can you borrow at all?
Start With What the Rules Allow
Many single-storey extensions in England are built without a full planning application, under permitted development rights. A single-storey rear extension can normally extend four metres beyond the original rear wall of a detached property and three metres for any other type of house, with a maximum height of four metres, says the Planning Portal. Extensions and other buildings should not cover more than half of the land around the original house. External materials must also match those of the existing building.
Plenty of single-storey extensions in England go ahead without a full planning application, under permitted development rights. According to the Planning Portal, a single-storey rear extension can usually reach four metres beyond the original rear wall of a detached house, or three metres on other houses, with a maximum height of four metres. Extensions and other buildings can cover no more than half the land around the original house. The outside materials also need to look similar to the existing ones.
How a Second Charge Works for a Growing Family
A second charge mortgage is an additional loan secured on the home, which is in second place behind your main mortgage. Citizens Advice says second charge, or further charge is another term for a second mortgage. And although these types of loans have a second position, Citizens Advice notes they give the lender the right to repossess the property if you’re late with repayments.
Families consider this option for different reasons. They may wish to retain a low fixed rate on their main mortgage. Or they may have a main lender who won’t lend you more, or one with severe exit penalties. Yet a further advance from your current lender or full remortgage may be cheaper so that you need to weigh up the cost of each.
Work Out the Monthly Cost First
Once you have a builder’s quote, turn it into a monthly figure you can test against your household budget. ABC Finance, an FCA-authorised broker, has a free calculator for second charge mortgages where you enter a loan amount, an interest rate and a term in years to see the monthly repayment and the interest-only cost. If any arrangement or broker fees will be added to the loan, include them in the amount so the result reflects what you would really pay.
Another page notes that the majority of second charge lenders limit you to borrowing 90% of the value of your home, and the loan to value is calculated across both loans. Most second mortgage lenders will let you extend the term up to 25 years, although if you’re over 46 you may not qualify for a longer term. Extending the term reduces monthly repayments, but increases the total amount to repay – so experiment with a few different options and consider the total cost of each.
A practical way is to consider the figure for a month when, for example, the boiler went up or the car needed new tyres. If it still balances, then you have a really good idea. If it only will balance on that dream month then perhaps a smaller project or more time to save would be more realistic.
Speak to Your Current Lender Early
Your current mortgage provider has a stake too. Its approval will be required for a second charge, and it can refuse if it believes you might struggle with increased repayments. The prompt receipt of that consent in writing will prevent a panic when your builder informs you of a build date.
Lenders new to you will also want to consider affordability. Citizens Advice advises the lender to “consider whether you can meet repayments, taking into account how you would manage if interest rates increased”. They will have asked you about your income, your expenses and everyday costs like childcare.
Your property may be repossessed if you do not keep up repayments on a mortgage or any other loan secured on it. If you’d like to talk through your options with someone who isn’t trying to sell anything, Money Helper and Citizens Advice offer free, impartial advice.
Planning the Build Around Family Life
When you’ve got young children in the house, timing is as important as money. Beginning the planning process in spring gives the council time to process any request for prior approval, before the improved weather for building arrives. A number of families go away for a few weeks and set up a provisional kitchen in a utility or dining room and that’s easier to plan for than the day they knock out the old one.
It is worth imagining how the space will work in five or 10 years’ time. A playroom now might be a teenager’s den or a study in a few years’ time. One room on the ground floor with a shower could provide a comfortable ground floor for a parent who will stay, and, if you plan for a longer-term view, budget for it and come to an agreement about borrowing before the first spade is turned, your extension could be a family favourite for the foreseeable future.
