How to Finance a House Extension? 

An extension can be a major commitment. This guide explains funding options, the costs to compare and checks to make before borrowing.

Many of them want to know about home improvement loans, so you're not alone in wanting to understand this.

In this guide, we’ll talk about:

•  What a home extension is
•  How to find and compare quotes
•  Whether you need permission to build an extension
•  How much a house extension might cost
•  How much value an extension might add to your house

We know that loans can be hard to understand. That’s why we’ve tried to make this guide simple and clear. 

So, get ready to learn about how to fund a house extension.

How much does a house extension cost?

Extension costs vary substantially with size, specification, ground conditions and location. Obtain current itemised project quotes rather than treating an undated price per square metre as a budget. See related guidance.

As expected, the exact costs will be determined by the specifics of the project and your location. There are other home extension costs to consider, including:

1. Architect or designer fees: request a written quote explaining the scope, VAT and whether charges are fixed, hourly or a percentage.
2. Surveys and professional reports: ask which are needed for the site and obtain current quotes.
3. Planning and building-control fees: check the current charges for the relevant UK nation, authority and type of application.
4. Insurance: tell the insurer before work starts and check cover during construction and after completion. Revised cover may be needed; a completely new policy is not automatically required.
5. Furnishing the new space – interior design and furnishings is likely to cost thousands of pounds as well 

An extension can add value, but there is no guarantee it will recover its full cost. Budget for contingencies and assess affordability without assuming a rise in value.

How much value will an extension add to my house?

Added value depends on the property, local market, design and quality. A quoted percentage from another property or survey is not a prediction for your home. See related guidance.

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Individual experiences vary. Compare the total cost, fees, repayment term and risks before applying. A lower monthly payment may mean paying more overall, and secured borrowing puts your home at risk if repayments are not maintained.

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How much can I borrow for a home extension?

The amount you can borrow to build a home extension will depend on the security value you use as collateral (if any), the lender’s Loan-to-Value (LTV) ratio, your personal finances, and your credit score. 

For illustration, a £175,000 home with a £100,000 mortgage has £75,000 equity. If a lender allows combined borrowing up to 80% of the property value, that is £140,000 in total, leaving £40,000 of potential additional borrowing before fees and subject to affordability.

I’ll discuss home equity loans as a method to refinance a home extension in more detail later. 

Can you remortgage to pay for an extension?

Some homeowners can remortgage their current mortgage deal and extend their borrowing to pay for an extension. This can typically be done by extending their mortgage with their existing mortgage lender or considering deals from other mortgage lenders. 

The homeowner will need to have enough home equity in their property to extend their borrowing. Home equity can be calculated by finding out the property’s current market valuations and subtracting all debts secured by the property, including the mortgage used to buy it. 

I’ll go into mortgage refinancing to fund a home extension in more detail later. 

Do I need to tell my mortgage company if I build an extension?

Check your mortgage conditions before work starts. Structural alterations can require the lender’s written consent, as well as any planning, building-control, leasehold or other permission that applies.

Any increase in value is uncertain. A lender will assess the property and the proposed borrowing under its own criteria.

From my experience, it could also be achieved by using the increased equity to take out a separate home equity loan. 

Methods to get a house extension loan

There are many ways to raise funds to pay for a home extension. Below we have discussed the most popular methods used:

1. Unsecured personal loan

An unsecured loan might give you the funds (or the remaining funds needed) to pay for your home conversion. These loans are usually capped at smaller amounts, so you might need some savings to contribute to the project to make it work. 

Compare unsecured and secured borrowing by total repayment, term, fees and affordability. An unsecured loan does not take an initial charge over the home, while secured borrowing creates repossession risk; neither is automatically cheaper.

2. Credit cards

A credit card can fund smaller costs. Section 75 may protect a qualifying purchase with a cash price over £100 and no more than £30,000, even if only part is paid by card. The required credit relationship and other conditions must be met; protection is not automatic for every transaction.

Credit-card rates, promotional periods and fees vary. Work out how the balance will be repaid, including the rate after any promotion.

3. Secured loan

The loan is secured on the property. Missed payments can lead to repossession through the applicable legal process; security does not remove affordability checks or give the lender an automatic right to take the home without that process.

Compare the total amount repayable, interest, all fees, the term and early-repayment charges. A lower monthly payment can mean a longer term and a higher total cost. Securing previously unsecured debt against your home puts the property at risk if you cannot keep up repayments.

Below, I have listed different types of secured loans that can be used to fund a home extension. 

4. Home improvement loan

“Home improvement loan” describes the purpose of borrowing. Products can be unsecured personal loans or secured borrowing, with different eligibility, limits and risks.

They provide a lump sum loan to the homeowner, which must be used to make home improvements. Adding an extension to a property would qualify. Sometimes the loan can be paid out in stages upon completing certain ‘milestones’ in the extension project. However, not all of them work like this. 

5. Home equity loans and HELOCs

UK homeowners may consider a further advance, remortgage or second-charge loan. A US-style HELOC should not be assumed to be readily available or to have the same terms in the UK.

Rates and eligibility change and depend on the product and your circumstances. Obtain a current personalised quotation or mortgage illustration and compare the total cost, fees, rate type and repayment terms; figures in this article are not live offers.

A conventional home equity loan provides a lump sum loan, and monthly repayments begin immediately. The repayment period continues for a fixed period. By the end of the period, all of the principal loan amount and interest will have been repaid, providing no payments were missed. 

A US-style home equity line of credit (HELOC) should not be assumed to be a standard UK product. Any UK revolving or drawdown secured facility has its own availability, fees and payment terms. Check whether interest or capital payments are required during the drawdown period and how the balance must be repaid.

Staged funding may help with a project, but check when payments start, fees on drawn or undrawn funds and the repayment deadline. Do not assume that no payments are due during a drawdown period.

The loan is secured on the property. Missed payments can lead to repossession through the applicable legal process; security does not remove affordability checks or give the lender an automatic right to take the home without that process.

6. Remortgaging

As mentioned earlier, remortgaging to fund a home extension is possible. This works by asking your current mortgage provider, or a different one, for a new mortgage deal but simultaneously borrowing more. You’ll only be able to do this if you have built up enough home equity – e.g. through continual mortgage repayments – to satisfy the lender’s criteria. 

For illustration, replacing a £100,000 mortgage with a £160,000 mortgage could release £60,000 before fees. Approval depends on valuation, affordability and the lender’s criteria.

7. Savings

Using your savings isn’t the easiest way to fund a home extension, probably because it will take a long time to save, and costs will rise over time to hit your savings goal. However, savings are an excellent way to fund the project along with any of the credit options listed above. 

It’s beneficial with unsecured lending as these options may not provide you with a nig enough loan to pay for the project. But, using savings and credit cards or savings and an unsecured loan could make it possible.

Self-Build Mortgages

Specialist renovation or self-build finance can release money in stages. Eligibility depends on the project; check whether funds are released before or after each stage and budget for cash-flow gaps, fees and overruns. It is not automatically cheaper.

Self-build mortgages aren’t widely available, so you must research to find the best deal.

Green Finance Options

Some lenders offer borrowing linked to energy improvements, but availability and eligibility change. Check current terms directly and compare them with grants or other funding available for the property.

The government also has several schemes and grants to help people make their homes more energy efficient.

Enquire about a secured loan through Loans Warehouse, a credit broker, not a lender. Approval and terms depend on checks. Compare the full cost before applying. MoneyNerd may receive a referral fee. Your home may be repossessed if you do not keep up repayments on a loan secured against it.

What is the best way to fund a house extension?

You have several options to fund your house extension project. The best method will depend on the credit options available to you. Always make a loan comparison before settling on a solution. Secured personal loans usually offer more credit and competitive interest rates, but it depends on a good credit rating. However, home extensions on finance are one way to achieve your goal.

When you’re comparing options, keep an eye out for the following:

1. Early repayment charges in case you want to clear the loan early
2. Arrangement, valuation, legal and other charges, including when they are paid and whether adding them to the loan incurs interest
3. A potential broker fee if using a broker, or any other hidden fees