How to build a home extension #6: Finance

So far in our ‘How to build a home extension - PPCo’s practical guide’ series we've covered everything from finding a local architect or designer to planning permission and building regs. And in this piece, it’s time to talk finances.

Where are you going to find the money to build that extension?

There are several financial options available but careful thought needs to be given before proceeding. It often comes down to the cost of the project, affordability and any other personal circumstances; it’s important to take all aspects into consideration and make an educated decision.

We’ll break down the different options available here…

Credit card

If your extension is relatively small, and you have savings, one way to finance some of it is by credit card - even better, by putting it on a new 0% interest card. By doing this, you will get a certain degree of protection thanks to the Consumer Credit Act, which can be a lifesaver if problems occur during the building project such as the building contractor failing to carry out his side of the agreement (we’ve written some advice earlier in this series on how to find the perfect builder to work with and hopefully avoid this situation). If you decide to go with this option, make sure you can afford the repayments each month and watch out for any hidden fees!

Remember, cards usually have a credit limit of £3-5k, so if you don’t have a sufficient pot of savings, it might not be a viable option.

Unsecured loan

If the amount you need to borrow is under £25k, another option is an unsecured - or personal - loan. This is a good option if you don’t like borrowing against your property and typically, there are no set up fees. To qualify, the lender - bank, building society or private lender - would need to look at your credit history and check you can manage the fixed repayments over the set time period.

As with all loans, it’s important to only borrow if it’s needed and planned for, borrow as little as possible, and make sure you’ve budgeted for the repayments. But do remember to factor in a contingency to cover any unexpected costs (find out what these can be in the next blog in this series).

Remortgaging or second mortgage

For work costing over £25k - likely to be the case for most home extensions - the best (read cheapest!) option is to remortgage, or take out a second mortgage (additional borrowing). One benefit of this option is that interest rates can be lower than those of personal loans. And the higher mortgage repayments are likely to be offset by the added value your home extension provides to your property.

If you’re tied into your current mortgage by early repayment charges then you can apply to your lender or another provider for a separate mortgage to finance the build, which, in effect, sits on top of your existing mortgage. In this case you would need to make sure you can meet the repayments for both mortgages.

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Whichever way you choose to do it, financing your extension need not be stressful. To chat through the home extension design process, ask a question about our architectural services or make a start on your design plans, contact our team here.

While we provide as much guidance as we can in our articles, we would urge you to speak to your bank, your mortgage provider or a financial advisor before making any important decisions when it comes to your finances.