FUNDING FOR YOUR HOUSE EXTENSION

Many home owners do not consider a home extensions funding until they have obtained their planning and building regulations approval and are ready to start on site or select their builder. Unless you have the ready cash in hand waiting, then this may be a mistake.

Gone are the days of free and easy credit or equity release (thank God). Most homeowners seeking finance now need to establish how this can be obtained perhaps before even engaging their home extension building designer.

Of all schemes approved through council, only 1 in 4 gets built within 1 year after approval. Why is this? Quite simply, the clients wish list has overrun the available funding constraints but they have already laid out many hundreds of pounds in professional fees to get to the point of ‘ready for construction’.

What is about us Brits that fail to look at reality in the face but happy to dabble in dreamland. Why do we continually plan to cross the ravine or find the greener grass but fail to have the money ready for the required rope bridge to facilitate that action?

There are 3 ways to fund your house extension and each should be confirmed early on before planning permission is sort.

1 - Cash! - funds ready & waiting.

Believe it or not, about a third of home owners wishing to extend, do actually have ready funds available either through good fortune or good planning. These clients are always serious about what they want and are usually well focussed on achieving their aims. I ,like these clients.

2 - Equity release - taking funds out of your current home asset via a Bank or Building Society.

Many home owners who have stayed put over the years rather than continually moving on are in the fortunate position of owning a greater proportion of their home against that owed by the mortgage.

This means that they can extract monies by either re-mortgaging or forming a separate second mortgage on the home to fund the new house extension works.

Provided the whole debt element is not more than around 70% of the homes current value then this is an easy option for funding the home extension project PROVIDED the home owner is satisfied that they can service the debt for a long period.

3 - Smoke and mirrors approach - The big gamble.

In a highly rising house price market this was fairly easy to achieve through some basic maths and assumptions based upon current experiences. Until a few years ago, even someone on a 100% mortgage could gain access to further funding if they could prove (or show on paper) that the extended home would add so much value when finished it was worth more than the accumulative funding. Even showing an estimated £2k profit was enough for that extra £80k funding of the two storey rear extension. Most of these people never even had any access to ‘buffer funding’ or their own capital that they could utilise if the magic house ownership formulae failed. These ‘newbie’ developers inspired by the property porn on all the TV channels finally paid a dear price for their naivety and so did the banks that we are all paying for now.

Am I bitter & twisted? - I will tell you in 5 years time.