A growing family comes with all kinds of elevated expenses and few are costlier than having to move to a bigger home.
Aside from the higher cost of a larger house, there are also all the associated costs.
Moving home can rack up costs into the tens of thousands once you factor in all the removal, stamp duty, estate agency fees and conveyancing fees.
While first-time buyers have been given some reprieve from these costs following the 2017 Budget in the form of stamp duty relief, growing families already on the ladder and now in need of some extra room haven’t been afforded the same luxury.
Unlike first-time buyers, growing families after more space aren’t eligible for stamp duty relief
With this in mind it’s no surprise that more and more households are instead opting to spend the money they would otherwise shell out on stamp duty and moving costs on improving their homes and extending to accommodate growing families.
And with house price growth steady across most areas of the UK over the past few years, many are have found themselves with a little extra equity tied up in their property, available to use should they need it.
So if you’re thinking about improving not moving, here’s how to use the value tied up in your home to expand.
The power of remortgaging
Remortgaging simply means refinancing your existing mortgage loan.
You can do this with your current lender, or you can pick a new one if you think you can get a better deal elsewhere.
As rates are currently at near-record lows, there’s a good chance you could cut your monthly costs significantly by switching, especially if you are currently sitting on your lender’s standard variable rate.
On top of reducing monthly costs, remortgaging can also be an opportunity to unlock some of the equity tied up in your home.
When remortgaging, some lenders will let you borrow more than you still owe on your existing loan.
This way, once you pay off your previous loan you will have cash left over which you can use to fund home improvements.
For example, say your home is worth £200,000 and you have £100,000 left to repay on your mortgage.
If you are currently on your lender’s SVR rate, most of which are around 5 per cent, your monthly payments would be £585.
If you remortgage to a typical five-year fixed rate of 1.
89 per cent your monthly payments will come down to £419.
If you were to extend your borrowing by £40,000 for example, this would take your loan-to-value from 50 per cent to 70 per cent, and a competitive typical five-year fixed rate would be 1.
96 per cent. Monthly payments would be £423.
If you do plan to extend your borrowing, the lender will most likely want to know what you plan to do with the extra money before they approve the loan.
You may need to supply your lender with some evidence that you plan to use the money to extend your property, for example planning applications or quotes from tradesmen.
On top of this, remortgaging can often come with an arrangement fee, so you may need some upfront funds to cover this if you don’t want to roll it into your loan.
Another way to get at the equity tied into your home is what is known as a further advance.
This is simply a second loan, like a top-up loan, which sits alongside your current mortgage and comes from your existing lender.
This means you get to keep your current deal on its current terms and continue paying it off just as you have been – particularly useful if you are on a great mortgage rate already or have a few years left to run on your current deal.
If extending the debt you’ll need to show your lender evidence of how you will use the money
The difference here is you will have to go through your lender’s affordability assessments all over again, something you would not necessarily have to do if you remortgage.
You will also have two different deals which will end on different dates, so plan accordingly.
A second charge mortgage, also known as a secured loan, is similar to a further advance.
The difference is that a second charge is a distinct contract, whereas a further advance changes the terms of a customer’s existing agreement.
Simply put, it is a second mortgage on your house.
Unlike a further advance a second charge mortgage can come from a separate lender. Like with a normal mortgage, if you fall behind on your monthly repayments your home may be repossessed.
All figures used in this article are sourced from This is Money’s whole of market mortgage tables and are reflective of a typical mortgage available from a number of providers.
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