6 Ways to Finance a Home Extension in 2024 – A UK Guide

What You Should Know About Home Extensions

When you decide to add more space to your home, there are several types of home extensions you might consider. Let’s explore some popular options you have:

• Single-storey extension – You add one floor to the back of your home, typically extending into your private garden.
• Double-storey extension – Similar to the above, but you add a second floor that blends with the existing structure of your home.
• Basic single-storey extensions – These are simpler structures like conservatories or orangeries that you can add to your home.
• Basement conversions – This type involves expanding your home downwards, which might be more complex and demanding.
• Wrap-around extensions – This “L”-shaped extension enlarges your home’s back and side, providing significantly more room.

How Much Will Your Home Extension Cost in the UK?

Estimating the cost of a home extension isn’t straightforward. Generally, prices range from £2,000 to £3,000 per square metre, and even up to £5,000 for complex projects like basement conversions. Your total expense will depend on specific project details and where you live. 

Additional costs might include:

• Architect fees – typically around 7% of the entire construction cost.
• Site survey – may cost you about £500.
• Planning permission application – usually slightly above £200.
• Insurance policies – you might need extra coverage during and after the construction.
• Furnishing – Setting up your new space can also be quite costly.

Although it might seem pricey, remember, that a well-done extension can add value to your home, offsetting the costs.

How to Finance an Extension? 6 Ways

When it comes to funding your home extension, there are many paths you can take. Your circumstances will significantly influence your choice of financing method, making it essential to explore your options and seek expert advice before making a decision. 

Here, we delve into some popular financing methods available in the UK:

1. Secured Loans

If you have a lot of equity in your home, a secured loan could be a good option for you.

Secured loans are also known as homeowner loans or second-charge mortgages. They are separate from your main mortgage and can be obtained from your current lender or a new one.

Pros
– Secured loans are generally more affordable than unsecured personal loans.
– You don’t need a good credit score to get a secured loan.
– Secured loans have long repayment periods, which can lower your monthly payments.
– You can borrow a large amount of money with a secured loan, as long as you have enough equity in your home.

Cons
– Secured loans are secured against your property, just like a first mortgage.
– You need to have enough equity in your home to cover the amount you want to borrow.
– Secured loans can have variable interest rates, which could increase your monthly payments.
– Longer repayment periods mean you will pay more interest overall.

2. Personal Loans or Unsecured Loans

Opting for a personal loan can be a simple way to get the funds you need for your home extension. These loans aren’t tied to your house, so having a good credit score is essential.

Be prepared, though, the costs might be slightly higher compared to secured loans.

Pros
– You have fixed monthly payments, which makes budgeting easier.
– You can choose a repayment term that suits you, typically between one and five years.
– Interest rates are usually lower than credit card rates.

Cons
– The borrowing limits, typically up to £30,000, may not be enough to cover the entire cost of your extension.
– You may be charged early repayment fees if you pay off the loan early.

3. Remortgaging

If you’re on a Standard Variable Rate (SVR) mortgage or your fixed-rate mortgage term is ending soon, remortgaging could be a smart move.

Remortgaging means getting a new mortgage to replace your existing one. This can be a good way to lower your monthly payments or consolidate your debts.

Pros
– You can secure a lower interest rate from your current lender or switch to a new lender with a more competitive rate.
– You can simplify your finances by consolidating multiple debts into one monthly mortgage payment.
– You can extend the repayment term of your mortgage, which can lower your monthly payments and make it easier to afford.

Cons
– Remortgaging often comes with upfront arrangement fees.
– Your home will be used as collateral for the mortgage, so you could lose it if you don’t keep up with the repayments.
– Extending the repayment term of your mortgage will lower your monthly payments, but it will also mean paying more interest overall.

4. Further Advance

A further advance involves asking your current mortgage lender to lend you more money on your existing loan. However, this might change your existing loan conditions and possibly increase your interest rate.

Pros
– You might find this a more affordable alternative compared to a secured personal loan.
– You can retain your current lender, potentially avoiding arrangement fees.

Cons
– You risk increasing your mortgage debt, possibly at a higher rate than your original loan.
– You might end up spreading the extension costs over a longer period, escalating the total costs in the end.

5. Bridging Loans

Bridging loans primarily helps individuals secure a property quickly with short-term funds. However, if you plan to enhance your home’s value with an extension before selling it, this type of loan could be a viable choice.

Pros
– You can secure up to 70-75% of your property’s value as a loan if no other mortgages are on it.
– You have time to enhance and reevaluate your home before committing to a long-term mortgage deal.
– You only need to pay the interest when repaying the loan capital.

Cons
– You should brace yourself for high monthly interest rates.
– You might find the initial fees hefty, though they might be deducted from the loan amount.

6. Using Savings and Credit Cards

Using your savings or a credit card with a good offer can be a more economical choice to fund your home extension.

Pros
– You avoid future interest or repayment concerns when you use your savings.
– You might find a cost-effective financing option for your extension with a low or zero-interest credit card offer, provided you can repay it quickly.

Cons
– You risk depleting your financial buffer for emergencies by using a significant portion of your savings.
– You might face skyrocketing interest rates once the introductory offer on your credit card ends, making your extension costlier in the long run.

Do You Need Planning Permission for a Home Extension?

You will most likely need to get planning permission before you start your home extension project. Your local council wants to make sure that your plan meets building regulations and does not harm neighbouring properties or wildlife areas.

However, you may not need permission for smaller projects like loft conversions, as these generally fall within permitted development rights.

Do You Need a Lawful Development Certificate for a Home Extension?

You do not need a Lawful Development Certificate for your extension, but it is a good idea to get one, especially if you are building under permitted development rights.

A Lawful Development Certificate proves that your extension was built legally at the time of construction. This can be helpful if you plan to sell your property in the future, as development regulations may change. It gives potential buyers peace of mind knowing that the extension was built legally.

How Much Value Does a Home Extension Add?

An extension doesn’t just give you more space; it can also increase your home’s value. The amount it adds depends largely on the type of extension you choose. 

For instance, adding a bedroom and an en suite might increase the property value by 10-12%, while a conservatory might add about 5-7%.

However, it’s essential to note that the cost might sometimes surpass the value added. The increase in value can vary greatly based on the type of extension and how you utilize the new space.

How Much Can You Borrow for a Home Extension?

The amount you can borrow depends on various factors like your home’s equity, the lender’s Loan-to-Value (LTV) ratio, your financial standing, and your credit score.

To give you an idea, if your home is valued at £175,000 and your current mortgage balance is £100,000, your home equity stands at £75,000. If a lender offers an 80% LTV ratio, you can borrow up to £60,000 against your home equity.

Should You Hire an Architect for Your Home Extension?

Whether or not to hire an architect for your home extension is up to you, but it can be a wise decision. Home extensions are often complex projects that can change the look and structure of your property, and having an experienced architect can help ensure that the project is safe, legal, and well-designed.

An architect can help you make the most of the space you have and can give you peace of mind knowing that your project will be carried out professionally. They can also help you navigate building regulations and make sure you are aware of any required fees, such as building control and planning consultation fees.

Hiring an architect may increase the cost of your project, but their expertise can be invaluable. Doing a thorough cost-benefit analysis can help you make the best decision for you.

The Bottom Line

Starting a home extension project is a big undertaking. It requires a significant investment of time, effort, and money. The decisions you make now will affect your family’s comfort and the future value of your home. So, it’s important to make informed choices at every stage of the process.

A smart thing to do at this point is to consult with an experienced loan broker. These professionals can streamline the financial aspects, potentially saving you time and money.

Their expertise can help you avoid pitfalls and secure favourable loan terms that align with your financial goals.

As you consider your options, remember that a home extension isn’t just about increasing your living space.

It’s about improving your quality of life and your family’s. Think of it as an investment in your future, a step towards building a home that meets everyone’s needs without the hassle of moving.

Ready to take the plunge? Fill out the form, and we’ll connect you with a knowledgeable loan broker who can guide you in making the best decisions for your home extension project.