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Our dream house is on the market.
Well, not quite our dream house, but it has the land for the two-storey extension required to make it our dream house.
So... how does one best go about moving and releasing equity and/or remortgaging so that there is a chunk of money available for a post-move extension??
Excuse the crass use of figures, no HumbleBrag intended, but it makes it easier to explain:
We reckon our current gaff should hopefully sell for £265k.
We have £150k left on the mortgage here at a decent rate (2.49% fixed for next four years). It is a portable mortgage so we have the option to take it with us, provided the top-up mortgage comes from the same provider (NatWest).
We’ve had an offer accepted on the new place for £295k.
We figure around £10k for moving costs and guesstimate that the two storey extension with kitchen and bathroom work will be around £100k. (North East prices).
Any thoughts on our best plan financially?
Do we just ditch the existing mortgage, get a new one for the full amount - 5% deposit and free up the equity that way?
Or do we port the existing, take a top up mortgage to near full amount?
Or is there some way to get a “mortgage based on what the projected value will be” type thing which might better reflect what we want the equity for and maybe give us better rate?
For us in a similar situation it worked best to port the existing and take an additional mortgage from the same lender for the additional amount. We chose how much extra we wanted to allow our planned works, and as we met the eligibility for that amount we got it.
But there were many factors in that decision unique to me, so I recommend you do what I did and take the advice of an independent financial advisor. It cost me nothing (in direct payment at least) and got me a mortgage deal I’m happy with.
edit: I should add we didn’t need to borrow more than the value of the existing house so didn’t need to worry about that factor as you might. I’d say even more reason to see an IFA!
Thanks @goldfish24.
Yeah we'll definitely seek some advice from an IFA, but it's always good to hear what options others went for.
The tricky part is freeing up the equity to use without getting absolutely stuffed on the rate because we are taking a 95% LTV mortgage - even though the final LTV will be a lot more favourable when we finish the work.
"So… how does one best go about moving and releasing equity and/or remortgaging so that there is a chunk of money available for a post-move extension??"
keep some money back from the sale and borrow more.
"we are taking a 95% LTV mortgage – even though the final LTV will be a lot more favourable when we finish the work."
Take a new deal with a short tie in (2yr fxd?) and then remo with a reval once the work is done.
So you need a £90K uplift to buy new place, plus £100K for the extension etc?
Really depends on the other terms of the current Mortgage. There are those that will allow the uplift required, however you are then substantially reducing your LTV which would effect the interest rate (negatively). As goldfish said, it may be easier to take out a second charge Mortgage either with the same lender or other. The banks normally provide some half decent advise so first port of call should be them.
Personally, i'd look to borrow as much as possible whilst the rates are low and get out of the current mortgage if possible (assuming no buyout clause), keep any cash you have to yourself, it will work harder for you outside of a mortgage for the time being, you can then use it to overpay if you cannot make it work harder elsewhere.
You all make it sound simple. 🙂 Maybe I am just overthinking it. (Wouldn't be the first time!)
So, say we sell at £265k and buy at £295k.
If we want to keep £110k back from the sale proceeds that leaves £155k. So we'd need to borrow an additional ~£140k against the new place.
That means the new place will have £290k of debt secured against it (£150k from ported existing mortgage + £140k from additional - or don't bother with the port and just go for a new mortgage at that value).
£290k mortgage for something we are paying £295k for seems pretty close to the wind for viable LTV though. Are lenders likely to go for that on the basis that we have £100k ready to make improvements with?
Big question is if you've got planning yet. You may find that you can't get that kind of LTV on the current house and therefore you may need to buy the new one, get planning and then apply to increase the mortgage on the back of that as the bank will be able to get the extended house valued and lend off the back of that.
Speak to your lender and take it from there, you're not the first person who wanted to do this so they'll have seen it all before and can advise accordingly.
Do you have any cash at all? Assuming not:
Current Property = £265k
Current Mortgage = £150k
Current Equity = £115k
-----------------------------------
New Property = £295k
Moving Costs = £10k
New Mortgage = £190k @ LTV of 64%
---------------------------------
Extension = £100k
New Mortage = £290k @ 98%
--------------------------------
There aren't many who will lend at 98% LTV. If there are, the rate will be horrendous. Personally, if you can live with the new property as-is, move in, live with it for a couple of years and extend once you've paid off some mortgage and the value (hopefully) has gone up so that you can at least borrow under a 90% LTV.
Another thing to consider, does your dream house already exist? If so, does it cost less than £395k?
Keep as much equity back from house sale. Take a 90% Mortgage on the new home, gets an ok rate then. On a no ties/no early repayment charges tracker. Do your work. Re-mortgage to another lender when work completed which is a free for valuation and solicitors and then will reflect the work you have done for new rates.
Apology just read about the tie in. Port the mortgage take a top up mortgage element to 90% of new purchase price. Rate for the top up will be similar % to your current ported deal. Get the new top up rate to run as close as possible to the time left on your ported deal, might need to be 2 lots of a 2 year deal for example. Do your work and re-mortgage when all ties ins have finished.
Big question is if you’ve got planning yet.
Nope.
Early stages yet. Right now they have only accepted our offer BUT they are keeping it on the market till we sell ours (so we've had a mad panic week trying to get ours market ready as quickly as possible!).
We have done a bit of background work to check that the trees we'd need to take out are not protected and we've had an architect friend take a look round to make some suggestions.
..get planning and then apply to increase the mortgage on the back of that..
Increase the mortgage just on the basis of planning? Is that something lenders will do?
Do you have any cash at all?
A few grand. Not enough that would make any notable difference to the figures above.
Another thing to consider, does your dream house already exist? If so, does it cost less than £395k?
Not that we've seen so far. We want to stay in this village, which is relatively small so pretty limited market. There are some new builds which are nice, but no real garden and we'd prefer an older property with a real fire and some soul.
There aren’t many who will lend at 98% LTV. If there are, the rate will be horrendous.
Maybe we just need to put up with a horrendous rate for a year or two till the work is complete and then remortgage at the (hopefully) lower LTV.
What will you do if you don't get planning? N<span style="font-size: 0.8rem;">o point working out best route to go to fund the extension if you can't have it.</span>
As others have said a 98% mortgage these days is pushing it and bear in mind the new lender affordability checks may well mean you can't borrow as much as you hoped.
They now drill down to magazine subscription level of spending habits and the old x * income minus existing debt repayments has long gone. Your entire monthly spend - shopping, bills, entertainment etc is all taken off your monthly income. The FCA has forced them to be ultra cautious.
Note portable mortgages often are not all that portable and quite often cannot be increased. To have two mortgages on a property means one would have to be second charge so not necessarily straightforward. Note also it's extremely unlikely you'll get a second charge lender to go to 98% as they're second in line of you default and unlikely to recoup all their money.
Not a mortgage adviser as such but been insuring them for 15 years so close to the industry.
Email in profile if you wish to use it. Mortgage Adv. last 25 years. On holiday from Thursday.