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UK home extension loan. What do you need to know about it?

Kredyt na rozbudowę domu w UK

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There comes a point in the lives of many families when the current home is no longer sufficient. This often happens when another child is born or one of the people develops an illness that forces them to use a wheelchair. In such a situation, you could look around for a new property, but a potentially better option is to make some modifications to your current home. Just where to get the money for this? The solution could be an extension loan or mortgage, which we will look at today.

Home extension loan – what you need to know

Home extension loan uk
Home extension loan uk

From this article you will learn, among other things, that:

  • There are several forms of obtaining money for home extensions;
  • A credit card will allow you to get the necessary funds fairly quickly, but this form of loan is relatively expensive;
  • You can get extra money from your mortgage for your renovation needs, allowing you to reduce your borrowing costs as much as possible;
  • Refinancing your mortgage can help you reduce your current instalments, so you will be able to save more money;
  • Building an extension will cost around £1500-2500 per square metre.

Are you interested in this topic? We encourage you to read the rest of the article!

How much does it cost to extend a house in the UK?

Home extension loan uk
Home extension loan uk

Everyone knows that property prices in the UK are not among the lowest, so as you can easily guess – an extension doesn’t come for free either. According to statistics, for every extra square metre of house you have to spend between £1,500 and £2,500. Adding an extra bedroom of 15 square metres can therefore cost close to £40,000, although of course it is often much less.

In many cases, homeowners decide to extend their property by 25-35 square metres, which ultimately costs them around £50,000. This is a large amount of money, so in such cases a property extension loan may be the only sensible solution.

Check this out: Is buying a home in England a good investment?

What do I gain by building an extension?

The benefits of increasing usable space in the home are indeed many. Apart from the obvious increase in comfort, we can mention more measurable gains.

Increase in value

According to our observations, three-bedroom houses have the lowest price per square meter. Therefore, if you decide to add a fourth or fifth room, you can expect a high increase in the value of your property.

Increasing attractiveness in the eyes of potential buyers

If you’ve been through the process of buying a home, you’re well aware that finding a property worth looking at can be difficult. Other people in the UK are also aware of this, so if you make small improvements to your property during the extension, you will make it much more attractive. If you sell, this decision will certainly pay off.

Carry out ongoing repairs and troubleshooting

It goes without saying that something needs to be fixed in every home. An extension is the perfect opportunity to carry out additional maintenance, and if you finance it with a mortgage, you will hardly feel the extra cost.

Reduction of heating bills

If you live in an older house, there is a good chance that it is not very well insulated. By building an extension, heat fluxion from part of the building can be reduced, which will have a positive impact on heating costs.

What is a home extension loan in the UK?

You need to know that there are at least several ways to put up an extension or loft conversion to your property. Depending on the scale of your investment, you can opt for:

  • Use of own savings;
  • Use of a credit card;
  • Taking out a loan or cash advance;
  • Refinancing an existing mortgage (remortgage).

Each of these solutions has both advantages and disadvantages. It is possible to choose the best option, but before doing so we need to analyse several factors that determine, among other things, the total amount you will have to pay back.

Credit card

Home extension loan uk
Home extension loan uk

Financing an extension with a credit card is possible, although it is not a very popular solution. While we can imagine that the bank will set a limit of £30,000 on the card, the cost of such a form of borrowing will be basically unacceptable. Of course, financing a home extension with a credit card also has some advantages – the whole thing is extremely quick, as you don’t have to submit any paperwork to the bank.

When is it a good idea to opt for a credit card payment? We recommend considering it if you plan to cover a large part of your investment with your own savings and the loan will only be a small part of the expenditure.

Loan for home extension

An alternative to a credit card is a standard loan from a bank. This is clearly a cheaper, but still relatively expensive form of financing for property development investments. Although you can save a lot on the interest rate difference, you will have to meet a little more paperwork to access the funds.

Borrowing £20,000, £30,000 or even £50,000 shouldn’t be a problem, especially if you plan to spread the repayments over several years. The big advantage of borrowing is that you don’t have to make a down-payment, so you don’t need to have a lot of savings to start renovating.

Remortgage

Probably the cheapest way of financing a home extension is simply a mortgage. There’s a good chance that you’re already paying off your home, and this presents a great opportunity to raise additional funds! In practice, remortgaging – in other words, refinancing your mortgage – involves adding an extra pot of funds based on the same security – your home.

Why is it worth it? A mortgage is basically the cheapest way to borrow money – the bank’s risk is extremely low, as they can even repossess your home if you don’t pay your instalments. Refinancing is also an opportunity to save extra money, as there may have been offers with better repayment terms since your mortgage agreement. In the end, a home extension mortgage could be cheaper than carrying out a renovation for cash!

If you are planning a general renovation, such a debt relief loan will prove to be clearly cheaper than paying off a consumer loan or credit card. Also consider the repayment period – by choosing to refinance your mortgage, you can spread the repayment over up to 30 years, and this will result in low installments.

Is a home extension loan a good investment?

Approaching the subject as objectively as possible, we must admit that the issue is complicated. Certainly, home extensions increase the value of a property by up to a dozen per cent and it may be that the increase in property valuation will outweigh the cost of renovation. Among the undoubted benefits is the improved comfort of the premises – after all, this is the reason why we decide to build an extension.

On the other hand, a home extension loan means additional costs that you have to factor into your household budget. Of course, most people will accept the extra payment without a problem, especially if it reduces the existing instalments on their property, but expenses always need to be taken into account.

Keep time in mind too – contrary to what you may think, it can take quite a while to get the funds from a loan, and many times you will spend more time on the process than you would on the mortgage refinancing procedure. With Extend Finance, our advisors will make it as easy as possible for you to get the money and you’ll be able to start your renovation after just about 1.5 months.

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

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