Are you considering additional borrowing to fund home improvements or a major life event? A further advance means you borrow more from your current mortgage provider to cover the costs of such things. However, it can be risky business if you start to miss payments – against your home, meaning it’s a secured loan and that if you can’t keep up the payments, your home is at risk. This section takes you through all the areas you need to consider before opting to borrow against your mortgage. And of course, our First Mortgage Advisors are here every step of the way to help you make the right decision.
Why borrow more?
You may want to do some work on your home, invest in another property or fund a big event. Borrowing against your mortgage is one way of accessing a lump sum, but there are costs associated. Talk to you First Mortgage advisor about the best way forward – a further advance, re-mortgaging, or something else entirely.
Borrowing more from your current lender makes sense when you want to fund home improvements, build an extension or buy land. All of these things add value to your property and make your house more of a home, so they are worth increasing your loan. Some people choose to borrow more to buy out a partner or joint borrower, or to increase their share in a shared ownership property.
Using a further advance to pay off other debts is something which needs to be carefully considered. The additional loan would be linked to your property, which you could lose if you were unable to keep up repayments. Even though interest rates on mortgages are currently much lower than those on loans or credit cards, you are paying back the money over a much longer period and so could end up paying considerably more over the long term.
Green additional mortgages
Green, or ‘energy efficient’ mortgages, let you borrow more money to pay for energy efficient upgrades to your home or to a property that you plan to buy. The result is an environmentally-friendly living space that is more efficient, using fewer resources for heating and cooling and running at a much lower cost.
Energy efficient mortgages are not second mortgages. They are additional borrowing created separately from your main mortgage account. However, the payments are rolled into one, so you make a single payment each month.
Lenders will generally expect you to spend the additional money on energy efficient boilers, insulation or solar panels: anything that leaves a lower carbon footprint and reduces household bills. As you will inevitably save money on utility bills, this is often taken into account when looking at affordability criteria.
Some lenders include ‘environmental payback’ in a green mortgage deal, donating money towards an environmental charity or pledging to plant trees as a way of offsetting the energy used to build and run a house. Most major banks and building societies now offer some form of green mortgage or additional advances. The Ecology Building Society goes one step further with a portfolio that specifically supports the promotion of ecological building practices and sustainable communities.
How borrowing more works
When you borrow more against your current mortgage, it’s called a further advance. This is usually at a different rate of interest to your current mortgage. Borrowing more with the lender you already have makes sense if their further advance rate is competitive, or you don’t want to re-mortgage or switch to a different lender.
Things to consider
Before you apply for a further advance on your mortgage, you need to check you can afford the additional payments. Your First Mortgage advisor will go through this with you, look at your income and outgoings, and assess if you can afford an increase in mortgage payments. For a more detailed look at what to consider see
How much can I borrow?
You’ll also want to make sure that you have a good credit record before you apply, and that the value of your home has increased beyond the mortgage amount you originally borrowed – in other words, that you have equity in your property.
Most lenders have a minimum lending criteria and will expect you to meet their lending requirements regardless of whether they are already lending to you. They need to make sure they can manage the risk of lending you extra money.
A further advance is not like a personal loan – it is secured on your property. So, while the interest rate charged will be lower than an unsecured loan, if you cannot keep up the additional repayments, you risk losing your home. See the How much can I borrow? section for more information.
Costs of borrowing more
Some lenders will charge a fee to increase your mortgage or set up an additional mortgage account on your property. Your First Mortgage advisor will look at the conditions of any lender you are considering borrowing from to make sure the fees involved are reasonable. As you are not technically remortgaging, remortgage fees are not charged, although you may have to pay for a valuation on your property to determine how much it is worth.
Applying to borrow more
You’ve decided that a further advance is the way to go, after looking at the sort of mortgages available to you and talking through your options with your First Mortgage advisor. Now it’s time to apply for your loan.
Getting a decision in principle
If you’ve decided to borrow more money, your first step is to work out how much you can afford to borrow. Once you’ve done this with your First Mortgage advisor and looked at your lender’s criteria (they may have a minimum and maximum additional amount you can borrow), you can go on to get a decision in principle. This is a statement from a lender of whether they’d be prepared to lend to you. As you are asking for more money from them, they will complete checks just as rigorous as if you were applying for your original mortgage, including a look at your credit report.
For further information on the next steps, see the sections on Getting a decision in principle and Applying for a mortgage.
Further mortgage support
If you want to look in detail at any part of the mortgage process, refer to our First Time Buyer’s Guide. It takes you through all the basics of the mortgage process and gives a step-by-step overview of all the key stages.
Your first meeting with a First Mortgage advisor is the start of a long-term commitment on our part to getting you the best mortgage deals – and that’s for the lifetime of your mortgages, rather than from one deal to the next.
Whenever you take out a new mortgage package, we’ll take a note of the details. When the end of the deal approaches, we’ll be in touch to talk about what you want to do next. This is all part of our free advisory service to help make mortgaging much easier for you.