The Government hopes that its proposal to relax the planning laws, making it easier to add a conservatory or extension, or do a loft conversion, will boost the economy. Rules on shops and offices expanding will also be relaxed as part of the scheme. But it’s not so much planning that’s the issue – for most people it’s lack of finance to pay for the building work.
It’s all well and good suggesting that the answer to the housing crisis is to extend existing homes but unless you have got the £20,000 upwards to pay for it sitting in your bank account, there could be funding issues.
Lending is tougher than before the downturn so getting your mortgage lender to advance the required funds will not be as easy as in the past. Lenders will look at the overall loan-to-value (LTV) once the extra funding is factored in: higher than 75 per cent, and the lender may well refuse the extra borrowing. So those borrowers with plenty of equity in their homes may be ok, but those who have a high LTV already may struggle.
Those borrowers who are enjoying the cheapest mortgage rates may also find that not only will their lender not lend the extra money at the same preferential rate, but that it insists that all the borrowing is remortgaged onto less attractive terms.
On the commercial side, the potential to develop more easily will be attractive to those who can access the necessary funding. More lenders have moved into this space in the past couple of years, including a number of bridging lenders, so there are increased funding options. We may see more investors taking a punt on a commercial purchase with the idea of developing and extending the building but specialist advice will be crucial to access funding options.
We welcome any move that might boost the economy and bolster the housing market at the same time. But borrowers should seek advice to ensure they are financing any project – whether it’s a residential or commercial deal – in the most cost-effective way.