PPCo Guide: How to build a home extension #6 - finance
Updated for 2021/22
This article is the sixth (and penultimate!) in our new PPCo Guide: How to build a home extension - a series which will take you step by step through the process of designing, planning and building your extension.
So far, we’ve covered the very initial stage of planning a home extension, the design stage, planning permission, building regulations and finding a builder.
Now it’s ready to talk finances!
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.
It’s also important to consider how you’re going to finance your home extension from the very beginning of the process, so you can factor affordability into the design itself.
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. 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.
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.
Coming up…
How to build a home extension #7: the build
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If this is the first article you’ve seen in this guide, why not check out the first instalment here and catch up!).
And no matter what stage you’re at in your project, our team is here to help. If you’re based in the East Midlands and you’d like to book in with our Nottingham team for a free, no obligation design consultation, please give us a call on 0115 874 8570 - or hit the button below.
Our fixed fee packages include all the necessary plans and guidance for a planning application. Plus, we handle the submission and all communications for you. For an idea of prices, please use our online calculator.
If you’re not quite ready to get started, or you’re based elsewhere in the UK, please feel free to check out the rest of our Advice Centre - and connect with us on Instagram and Facebook for tips and inspiration.