With the UK now formally in recession for the first time in 11 years, mortgage providers are inevitably becoming more circumspect in how they lend money for house purchases. And that means it’s becoming harder to secure the larger sums needed to move.
As the Financial Times reported in June, most lenders are now capping their lending to a maximum of between 85% and 95% of the property value, meaning that in some cases buyers are having to stump up three times the deposit that might have been needed before the coronavirus pandemic.
Whilst that impacts on everyone, the most significant effect of lenders tightening the purse strings will be felt among those who are either buying a property for the first time or who might be looking to upsize without much equity in their existing home.
Although that will be frustrating if you had your heart set on climbing the property ladder but have found yourself unable to raise the money needed to do it, it doesn’t mean you’re completely out of options.
In the absence of being able to move, many people are now looking at extending their current home to gain some of the space a move might have provided.
Re-mortgaging to be able to create more space could be a smart move if the sums are too tight to secure the lending required to buy something new.
At the end of the day, your chosen lender is concerned with only one thing, and that’s the financial risk associated with lending you money. Capping mortgages means you shoulder a greater proportion of that risk and reduces their own exposure.
Similarly, because the cost of building work to extend your property will usually be very much lower than the cost of moving, the loan required to carry out that work will be significantly lower too.
So, how does remortgaging for an extension work?
To begin with, you need to understand that a remortgage for any purpose, whether it’s for home improvements or to get a better deal with another lender, is still a mortgage and the lender will want to ensure you can afford the repayments associated with it.
So when it comes to applying for extra cash to carry out building or improvement works, the value of your property, the outstanding balance of your mortgage loan and your current financial circumstances are all factors that your prospective lender will want to check carefully.
Assuming you have plenty of equity in your home to give you a good loan to value (LTV) rate and the amount you want to add to your existing mortgage doesn’t take you too close to your affordability ceiling, you should have a good chance of your application being successful.
As with all big financial decisions, I’d always recommend using a professional adviser when assessing your borrowing options.
There are a number of good reasons to work with a professional mortgage broker or adviser, not least the expert knowledge they have of the market and the available products, which may well give you more suitable options for your circumstances.
An experienced adviser will also help you to consider things that may not occur to you – how additional borrowing might impact on your future spending plans, a growing family or your ambitions to retire, for example.
There is also the advantage of having someone with expertise in the mortgage market looking after your application from start to finish. They will be able to ensure all the information you need for the mortgage is included and will present it in the best possible way to give your application every chance of being approved.
After that, it’s just a case of planning how you’re going to make the most of the all the additional space you’re going to have as a result.
So, if you’re rethinking your plans to move and believe you may be better off remortgaging either to save yourself money through a better deal with another lender or to increase the space within your existing home, why not come and talk to us and see how we can help to make that dream a reality.
Please note: all information contained within this article was accurate at the time of publication.
Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.