Buying new house but mortgage doesn't cover extension works

[MidlifeCrisis]

Hi,
Thanks for reading this everyone, it's my first post and any advice would be gratefully received.

My growing family of partner + 3 kids (+1 more on the way) needs a bigger house to live in.

The house we are currently in is unencumbered and I would expect it to fetch €160K+ on the market if we were to sell, and gross rent of €1300 p/m if we were to rent.

We have approval in principle for upto €220K of a mortgage (90% of mortgage + works as we are classed as first time buyers because we never had a mortgage on our current house), which we are slightly disappointed with. We also have savings of approx €75K.

A house we are keen to buy looks like it will go to approx €220K which means that a deposit of 10% will leave us with a mortgage of €198K and savings of €53K.

The reason we are buying the house is because of the extension potential. Our preferred extension of the back has been estimated to cost between €115K and €120K. It looks to me like the only way to cover the extension in the short term is to sell our current property, but we would ideally like to hold onto it for the kids (one in particular may need it when he grows up)

The basic question is after we get our mortgage, is it possible to somehow levy rental income and remaining savings to get a loan towards the majority or all of the extension costs? Or how would other members go about tackling this problem? How does the game go?

Best regards to all,
MLC

 

[Brendan Burgess]

Hi MLC

Is this the correct summary?

Let's assume that the bank will lend you the money - is it a good idea? I am not sure that it is. You have 4 young children.You are going to have big expenses. Your partner may want to take a career break.

Worry at this stage about the next ten years or so and not what your child might want at some stage long into the future.

So I would suggest selling your existing house and living comfortably with a small mortgage. Pay it off and then start saving again. I assume your son has some special need. When that arises, then with your savings, maybe buy something at that time for him.

But if you really want to keep your house

Approach Pepper about refinancing the Buy to Let. They are the only lender who might do it. But it will be a high mortgage rate. Do that now, so you know where you stand.

Buy the house when you have approval from Pepper.

Alternatively, buy the house now and live in it for a few years before extending it. If you have paid down the mortgage a bit and if your income has increased, you might be able to get a remortgage for the extension. If you can't, then apply to Pepper at that stage or else sell the investment.

If you can remortgage your current home
1) You will not be able to claim the interest paid on it for tax purposes, so you will pay the top rate of tax on the entire rental income
2) You might be better off getting a 90% mortgage on your home as the home loan rate is cheaper than the rate Pepper would charge. However, if you are borrowing close to 80%,the rate might be cheaper, so it could be worth borrowing a bit more from Pepper and a bit less on your home loan.

Brendan

 

[Bronte]

I think your vague reason for holding onto the first house doesn’t cut mustard. So sell and buy. Then set about getting planning for the extension. Think also about making it capable of being it’s own self contained unit. When kids are gone that could be used for the single possible issue child. So build it with those potential needs in mind. If not needed you have a money generating tax free income from it.

And if the garden is large you might even be allowed to also install a 2 bed log cabin.

 

[MidlifeCrisis]

Thanks everyone for the advice. It's definitely making more sense to sell now at this stage. Bid has gone to 220K now, so we can't practically keep the existing house and get the extension done. Do I go to 225K or not is why I'm awake at 3:12am

 

[Bronte]

Why go up 5K. Try 1K. Have you checked out how much similar houses sold for. What was the asking price?