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Last Updated on January 24, 2021

How To Finance An Extension

Zac Houghton

Zac Houghton

Construction expert and founder of Loftera.

There are many reasons why people choose to build an extension on their existing home. New additions to a family require more space, and an extension is an ideal way to acquire that space for families that don’t wish to move home.

Or perhaps you are simply looking to add some value to your property. While single-storey extensions can add between 4-7% on the average UK property, a double-storey extension can add a staggering 11% on the value of your home.

The average house price in the UK is now at £262,000 (1), meaning that the average increase on a property value that has a double-storey extension built is up to £29,000.

If you’re considering extending your home to fit a new bathroom, you’re making a wise choice. Adding a second bathroom to your property can add up to £15,000 on the value of your home, so it is absolutely worth considering.

How To Finance An Extension

Table of Contents

The chances are, if you’re reading this Loftera blog, you have already committed to building an extension on your home – or are at least seriously considering it.

In that case, you’ll likely be well aware of the benefits involved.

With that in mind, let’s move swiftly on to the matter at hand. How to finance an extension.

Mortgage Refinancing

Put simply, a remortgage is the act of transferring your mortgage from one bank to another. There are a few reasons as to why homeowners choose to remortgage, but the most common reason is to raise funds. In this instance, the funds are to be raised for the very property that the mortgage is taken out against.

When remortgaging, you will agree to a new repayment plan that you will be paying off for longer than the initial agreement, but you’ll have access to the required cash to carry out your project.

There is a possibility that you’ll be able to borrow the required funds at a lower rate than you are currently paying – either with your current provider or a new lender. Another potential plus point is the possibility of consolidating your existing debts into a new and affordable mortgage repayment.

In the same way that they did when you applied for your first mortgage, lenders will assess your current financial situation, including income and credit score, before deciding whether or not to accept you for remortgaging.

Consider A Second Mortgage

Otherwise known as a homeowner loan or secured loan, a second mortgage allows you to use the equity that you currently have in your home as collateral against a new loan. For example, if your property is worth £250,000 and you have £150,000 left to pay on your mortgage, you have £100,000 worth of equity. It is this equity that your second mortgage would be secured against.

If you are committed to a current mortgage, and wish to avoid the early repayment charges, a second mortgage could well be your best option. If you have an impressive credit score history, you can receive a competitive rate on a loan that can be paid back over ten years or more.

Further reading: Can a mortgage include renovation costs?

Use Your Savings

Extensions tend to be an expensive business, meaning that most people simply don’t have the money saved up to pay for a project of this size in its entirety.

If you do find yourself in a position to be able to pay the entire cost through savings, give yourself a pat on the back. This is without question the best way to finance an extension build.

If you have the majority, or even half of the overall costs for your extension saved, you can put that towards the project and finance the remainder through another method.

One word of advice. Take into account the current interest rates available at the time. Each situation is different, but you may want to consider a loan of some sort instead of emptying all of your savings.

Pay On A Credit Card

Those 0% credit cards, we just love them. If you are embarking on a smaller extension, there is every chance that you can cover the bulk of the costs, if not all, on a credit card. Be sure to find a 0% interest rate, as the repayments can soon add up if you find yourself paying a higher rate.

A major plus point of paying for your extension on a credit card is the added protection that you will receive. Any problems that you encounter during the build will be covered on most credit cards.

Apply For A Loan

Loans tend to be reviewed based on your credit history. With this in mind, if you have a particularly strong credit rating, a loan could well be your best option. Better credit scores make for better interest rates. You can often decide on the length of time that you intend to pay back the loan. Longer loan periods will result in smaller repayment amounts, but you’ll end up paying more through interest in the long run this way.

Adding an extension to your home is a fantastic way to improve your home life, without the upheaval of having to relocate. Hopefully, one of the above five options jumps out at you as a feasible way of financing a home extension.

Enjoy!

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