How to finance a house extension

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How to finance an extension to your house

A home extension is a popular choice for homeowner who wants more space, but doesn’t want to move house.

If you’re in this camp, it’s good to know there are lots of ways to finance a house extension. An extension can cost anything from £30,000 to £60,000, so the way you finance an extension may depend on your budget and plans.

What is a house extension?

A house extension is a building project that works to add living space on to your house, either by adding a new structure or converting a non-living space.

There are a few types of house extension:

  • Wrap around - this type of house extension adds both width and depth to a house. If you own a detached or semi-detached house, you might extend living space at the side and also build into the garden
  • Double storey - these extensions involve building an extension and then adding an upstairs area above it. As well as that dream open-plan kitchen, you could add a bedroom and bathroom
  • Loft conversion - these convert existing attics into rooms – often bedrooms. Only attics with at least 2.2m of head height can be converted this way. There are several types of loft conversions – roof light loft conversions are simplest, while modular loft conversions can be the most dramatic
  • Dormer - this extension juts out from a sloping roof and can be used to transform a bungalow, garage or house loft. It allows you to add more room-height space to an area with sloping ceilings
  • Rear - a rear extension uses space behind your house, so you’ll need a garden. It takes away a portion of the rear walls and adds new foundations and outer walls for a bigger space
  • Basement - convert an existing cellar into a room or excavating and underpinning to build a new basement

How much value does an extension add to the value of your house?

The main aim of an extension is to add space – but building work could also add value to your house.

How much an extension adds will depend on the type of work you do – not all extensions will add the same value. For example, an extension which adds a bedroom and en suite could add 10-12% to tthe property value, while a conservatory could add 5-7%.

There are lots of factors that determine a home’s value, so there’s no guarantee an extension will add value to your home. There’s a chance the cost of the work could be higher than the value added.

There are lots of different types of extension:

  • Wrap around - the value increase you may see after a wrap around extension depends on its size and the rooms you add
  • Double storey - an extension that adds space both upstairs and downstairs could hike property value by 11%. Of course, what’s inside matters too – kitchens, bedrooms and bathrooms can be especially lucrative
  • Loft conversion - converting your loft can add value, depending on its size and what the room is used for
  • Rear - rear extension projects may raise the value of your home, depending how the space is used. For example, a large new kitchen may add more value than a study
  • Basement - according to the HomeOwners Alliance, digging down could increase your property’s value by as much as 20%. This extension type is especially popular in locations where extra space comes at a premium, like London

How to fund an extension

Home improvement loan

A home improvement loan is one option for funding a house extension. A home improvement loan offers the flexibility to fit repayments around big life changes.

This type of loan type is unsecured, so you don’t borrow against your property.

Savings

If you have some cash to spare, then using this to pay for your house extension can make sense.

This way, finance options aren’t a barrier – and you’ll pay no interest. Of course, you’ll need to have the cash to start with.

The average cost of a house extension is £1,350 to £2,250 per square metre of new internal space, according to HomeBuilding & Renovating - but you may also want to budget for the cost of things such as decorating and furniture.

Remortgage

Remortgaging your house – moving your mortgage to a new lender or deal – is another way to borrow money to fund an extension.

This method comes with risk, since you’ll borrow money against your home itself, so could lose your home if you miss repayments. You may also need to pay an early repayment fee if you remortgage during your agreed term.

Borrow more from your current lender

Instead of remortgaging, you might be able to borrow more money from your current lender. Additional borrowing could be used to fund an extension, but you need to confident you’ll be able to keep up to the repayments, or your home could be repossessed.

Credit card

A 0% or low-interest credit card can let you borrow money for home improvements. It’s a method usually suited to smaller house extension projects, or to cover decorating costs.

It’s important to be comfortable with repaying the whole amount during the interest-free period, to avoid accruing interest on the money borrowed. Speak to a financial adviser before putting major building work on a credit card.

Do you need planning permission for an extension?

Planning permission can throw up some barriers to building an extension, even when finance is taken care of – so it’s good to know where you stand from the start.

Not every type of house extension needs planning permission. Anything that falls within your permitted development rights is usually exempt from planning permission rules.

You may be able to skip the planning permission process if your extension will:

  • Cover less than half of your land around the house – as it was originally built
  • Not extend too far out – this may be six to eight metres from your house, depending on property type. For double-storey extensions, the limit is three metres – and the extension must end at least seven metres from your garden’s rear edge
  • Not go too high – for side extensions, the limit is four metres. These also should be no more than half the house’s original width

Other rules apply – these are set out by the HomeOwners Alliance Loft conversions that don’t go beyond the existing roof slope will often be exempt.

Your permitted development rights are likely to be strict if you live in or near to a:

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