Building an extension to increase living space or add a further bedroom or two is a good way of increasing the value of your home. Often this is more cost effective than moving to a bigger property, but you do need to figure out how you are going to pay for the work. If you move house, it is standard practice to re-mortgage, but staying put and building an extension is slightly different. So what are your finance options?


Cash is the most obvious solution. If you have plenty of savings in the bank and are able to cover the cost of work without needing any extra finance, all you need to do is find a builder and agree a final price for the job.


Mortgage Funding

Aside from cash, adding the cost of an extension on to your mortgage is the cheapest way to pay for the work. Your existing lender may agree to loan you the cash if you have enough equity in your home, but if you are locked into a fixed rate or discounted deal, there might be fees to pay. It is definitely worth shopping around for a better deal if you are free to leave, but lending criteria is a lot tougher these days so be prepared for some knock-backs if you don’t meet the affordability requirements.

Secured Loan

Secured loans are easier to obtain and you should be able to borrow enough to cover the cost of an extension. However, the repayments will be higher than mortgage payments, so do make sure you can afford it.

Personal Loan

A personal loan is an option if you don’t need to borrow a significant chunk of money. Personal loans are more flexible than secured loans and because they are “unsecured”, your home won’t be at risk if you fail to meet the repayments. However, on the downside the repayments will be more expensive, so again, make sure you can afford it.

Which is the Best Funding Option?

Mortgage funding is often viewed as the most attractive option for cash strapped home owners looking to extend rather than move. The main reason for this is because the repayments are cheap and therefore more affordable. However, what you need to remember is that you will be paying a lot more in interest on the loan in the long term, and if you have to pay redemption fees to leave your current mortgage arrangement, the cost will be even higher.

Secured and unsecured loans from high street lenders and online companies are more expensive, but because the term of the loan is a lot shorter, the overall cost is lower. Personal loans can also be more flexible than mortgage funding: some loans can be repaid sooner without penalties, which is useful if you have a variable income and would like the option of making extra repayments.

Whatever type of funding you go for, always budget carefully to take into the cost of the repayments, or you could end up losing your home.