Don't move, improve to solve your housing problem

You don't need to be any kind of economist to know that the financial outlook for the UK is currently not looking bright. Rising mortgage costs combined with falling house prices (averaging 2.5% in March according to Halifax and at their fastest rate for 30 years according to the Royal Institution of Chartered Surveyors) and the downgrading of UK growth forecast by the IMF last week to 1.6% for both this year and 2009 - have all been well documented in recent months, weeks and days.

Life goes on however, none of the above will prevent people from living their lives. This means starting or expanding families, which in turn, means requiring more space. The most obvious method of securing more square footage in your life is simply move to a bigger house. But, looking at the most recent figures published by the National Association of Estate Agents (NAEA), this does not currently seem an appealing option. In February 2004 when the housing boom was in full swing, estate agents had an average of 614 buyers on their books. By February this year, this figure had dwindled down to just 243 buyers.

So if you don't want to stick your neck out of the front door to brave the winds of the housing market, there is always another option; stay put, ride out the housing slump and obtain planning permission for any of a variety of home improvements - an extension, extra bedroom or loft conversion in your current home. But while this solves some immediate problems, the downside is that it will still mean borrowing money. There are several ways to do this depending on your circumstances.

Remortgaging

If your mortgage is coming to an end and you are looking to remortgage , you can 'up your loan' with your application. But be warned. Firstly there are a lot fewer mortgages to choose from these days; since just the beginning of March 2,932 separate deals have been taken off the market, according to financial data provider Moneyfacts - and currently just 4,389 remain. On Friday, 11 April 2008, the chairman of the Council of Mortgage Lenders (CML), Steven Crawshaw warned that even these remaining deals could halve in number by the end of the year unless the Bank of England steps in and makes money available to lenders.

Also, many lenders, including Nationwide and Alliance & Leicester have reduced their Loan to Values across the board or simply restricted the best deals to below 75%. This means that, if you qualify at all for the larger loan, you may pay more in interest for the whole lot rather than just the 'top slice'. An Independent Financial Adviser can add up the sums to see what deal makes sense for your circumstances.

Bear in mind also that your Loan to Value could be higher than the last time you checked, as house prices have fallen in the short-term, while annual house price inflation has fallen to 1.1%, according to Halifax.

Are you looking to remortgage to extend your property?

Sure about your mortgage choices? If you're not and you need someone to talk to, why not call us for independent, unbiased mortgage advice.

Take a further advance

It may be the case that you are tied into your current mortgage or you are lucky enough to have a competitive base rate tracker that you don't want to lose. In this case, sticking with your current loan and taking a further advance could be the way to bring about your home improvements' dream. But this does not come without pitfalls.

If the further advance takes the homeowner above 75% Loan to Value, most lenders will now only grant the loan if it is specifically for 'home improvements', rather than just to raise capital, so you will need to prove this. What's more, if you are on an existing competitive deal, it is highly unlikely that your lender will offer you a preferential rate. Its more likely that you will be offered the SVR for that portion of the loan which will be priced around 7%.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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25 April 2008 © Moneyextra.com

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