March 2023: Can you borrow money against your home to fund a building project? Neil Bishop of Mortgages for Business has the answer. He also helps a reader boost their credit score and looks at Lifetime ISAs and shared ownership
Garden office – can I get another mortgage to finance it?Question
I would like to make some renovations to my house – revamp the two bathrooms – and also build a garden office/gym. I wondered whether there was a way to borrow against the house or get a second mortgage to raise the money.
I’m currently on a five-year fixed deal which ends in January 2025 so I understand I would need to pay an exit fee if I remortgaged to borrow the additional money. I think I will need an additional £60k for the work.
Answer
That sounds exciting! Yes, arranging an additional mortgage to finance your home improvements is possible, and you have a few options available to you.
One route would be to look at a ‘further advance’ with your current lender. This process would set up a separate loan to run alongside your current mortgage product, typically for the remainder of your current mortgage term (in this case, the five years).
If you were looking to take a fixed rate on this separate mortgage, remember that this new loan could have its own Early Repayment Charges too.
Another option is a ‘second charge’ loan, which would be with a different lender from your original mortgage. Your current lender would need to approve a second charge being assigned to the security address, and the second charge provider would be able to tell you which lenders they can work alongside.
As this option can be complex, instructing an experienced broker to assist you in the process will be invaluable.
The other option you mentioned is to remortgage away to a different lender, and you’re right; it would trigger the Early Repayment Charges on your current loan. However, depending on the new rate on the new total borrowing, this may be a cheaper route.
Again, a mortgage broker can help you here and calculate whether you should pay the fees in exchange for a better deal with a new lender. This transaction would be a ‘Remortgage with Capital Raising’.
Question
I recently applied for a mortgage and was rejected as I had a poor credit rating. I wondered if you had any advice on what I can do to improve my score and how long it might take to make it better?
I have around £8k in credit card debt and I’ve been paying back the minimum to put money aside for my deposit. I had a couple of non-payments three or four years ago which I think must have placed a black mark on my credit score.
Any advice would be gratefully received.
Answer
The very first point of call, if you haven’t already, would be to obtain a copy of your full credit report to determine where the issues may lie.
A good website to access your credit report is www.checkmyfile.com, as they gather your information from the three main credit agencies in the UK – Experian, Equifax, and TransUnion. Once you know what the issues are, you can then start to work on them.
There are a few different ways to go about improving your credit score. One would be to lower the overall utilisation of debt. For example, £8,000 debt on a credit card with a £10,000 limit is using 80% of available credit, and, overtime, this high utilisation can erode your credit score.
Alternatively, if you had the same debt but on a credit card with a £16,000 limit, your utilisation would be 50% and could have a lesser impact on your credit score.
If increasing your credit card limit is not an option, then look to pay down the balance by as much as possible. Please seek professional financial advice, either from your bank or your credit card provider, before making any decisions.
Another way is to make sure your bill payments are all being made on time. Setting up direct debits is an easy way to make sure you don’t miss a payment, as late payments will leave a mark on your file and stay on there for six years. If you disagree with the late payment information on your credit file, you can appeal with your bank to have them removed.
Certain specialist mortgage lenders can work with clients with less than perfect credit scores, and a whole of market broker would be best placed to find you the best lender for your circumstances. Credit agencies refresh their data every month, so any positive steps you make can reflect quickly on your score.
Question
I’ve been saving for what seems like a century – but is actually only five years – for my first home. I opened a Lifetime ISA (LISA) two years ago and now have a grand total of £7,000 which is nowhere near enough to buy anything much.
So, I have been considering shared ownership. Do you know if I can use the deposit saved in my LISA for the shared ownership scheme? Also, I have my LISA in which I have £3,500 and the rest is in a savings account. Can I use both accounts to fund my deposit?
Answer
Well done! I know that saving for your first property purchase can be daunting and overwhelming, but it’s great that you’ve stuck with it and are now in a strong position for when you do look to buy.
Yes, you can use both savings accounts towards a shared ownership purchase. You will need to make sure that the conditions of the LISA are met, together with the conditions of the shared ownership scheme. A broker can help you with this when the time comes – best of luck.
Question
I’m due to remortgage shortly and I need to seek advice from a broker because I am aware mortgage rates have increased a lot.
When I took out my mortgage five years ago, I simply spoke to the adviser at my bank who found me a deal with them so I have no experience with whole of market brokers.
I would like to understand more about how I would pay them – is it a percentage fee and does the money get rolled up into the loan? Also do I need to get legal advice for the remortgage?
Answer
A whole-of-market broker is similar to an adviser in a bank, with the same qualifications and level of advice. However, the distinct difference is a whole-of-market broker can access hundreds if not thousands of mortgage deals from all lenders within the market space.
In contrast, a bank-based adviser can only offer you products from that one bank. As such, using a whole-of-market broker gives you confidence that you have the best deal for your situation.
In terms of broker fees, these can vary from firm to firm. Some brokers charge no fee at all, some charge a set fee, and others tailor their fee depending on how complex the case is.
If a fee is payable to the broker, it is generally paid directly to them by yourself, or collected by the solicitor when the transaction completes.
I may be biased, but I strongly recommend speaking with an experienced whole-of-market broker for your mortgage. Even if you decide to go down the bank-adviser route, getting initial advice on your situation may prove invaluable to your application.
As part of the residential desk at Mortgages for Business, Neil can offer advice on an extensive range of scenarios – from those looking to purchase their first home, to those with complex income streams looking to move or remortgage.
Before joining Mortgages for Business in 2022, he managed a team of five brokers at a new build specialist, sourcing finance for home buyers. He’s also the proud owner of a Green Blue Peter Badge!
Email kate.saines@emap.com to ask him a question
