Extension Financing London 2025: Loans, Mortgages & Payment Options
Complete guide to financing your London extension. Compare remortgage, loans, and payment plans to find the best option for your £50k-150k project.
Financing Options at a Glance
- Remortgage: £50k-150k, 2.5-5% interest, cheapest long-term option
- Further Advance: £20k-75k, keeps existing rate, 4-8 weeks
- Personal Loan: £5k-50k, 6-12% interest, fastest approval (1-3 days)
- Builder Staged Payments: Pay as work progresses, 0-10% arrangement fee
- Calculate your extension cost first
How Much Do You Need to Borrow?
Before exploring financing options, understand your total budget. Extension costs vary significantly by type and specification.
| Extension Type | Typical Cost | With Fees + Contingency |
|---|---|---|
| Single storey rear (20m²) | £55k-£85k | £65k-£100k |
| Side return extension | £55k-£85k | £65k-£100k |
| Loft conversion | £45k-£85k | £55k-£100k |
| Two storey extension | £95k-£180k | £110k-£210k |
| Wrap-around (side + rear) | £80k-£130k | £95k-£155k |
* Total budget includes: construction, design fees, planning, building regs, party wall, and 10-15% contingency
Budget tip: Always add 10-20% to builder quotes for professional fees, contingency, and hidden costs. A £75k builder quote typically becomes £85k-£95k total project cost. See our complete cost guide.
Option 1: Remortgage for Extension
Refinancing your entire mortgage is often the cheapest way to raise funds for large extensions (£75k+). You replace your current mortgage with a new, larger one.
How Remortgaging Works
According to MoneyHelper (government-backed service), remortgaging allows you to switch to a new mortgage deal while releasing equity for home improvements.
- 1Property valuation (lender arranges, £200-£500)
- 2Apply for new mortgage (existing balance + extension cost)
- 3New lender pays off old mortgage + releases extra funds
- 4Timeline: 4-8 weeks typical (source: Which? Money)
Pros & Cons
Advantages
- • Lowest interest rates (2.5-5%)
- • Spread over 25-30 years
- • Can access better deals
- • Single monthly payment
Disadvantages
- • Early repayment charges (1-5%)
- • Arrangement fees (£999-£1,999)
- • 4-8 weeks timeline
- • Legal fees £500-£1,000
Real Example: £100k Extension
When to Use Remortgage
- Large projects: £75,000 or more
- Current mortgage rate is high (above 4-5%)
- Coming to end of fixed-rate deal anyway
- You have time (not urgent, can wait 6-8 weeks)
Option 2: Further Advance (Additional Borrowing)
A further advance (also called "additional borrowing" or "second advance") lets you borrow extra money from your existing mortgage lender without switching mortgages.
How Further Advance Works
Your lender tops up your existing mortgage with an additional loan. You keep your current mortgage rate and term, and the new borrowing is added as a separate agreement (sometimes at a different rate). The Financial Conduct Authority (FCA) regulates further advances under the same consumer protections as your main mortgage.
Typical Further Advance Terms
- Borrow: £20,000 - £75,000 (lender dependent)
- Interest rate: Usually 0.5-1.5% above your current mortgage rate
- Timeline: 4-6 weeks typically (faster than remortgage)
- Fees: £99-£500 arrangement fee (much lower than remortgage)
Real Example: £60k Further Advance
When to Use Further Advance
- Your current mortgage rate is excellent (below 3%)
- Mid-sized projects: £20k-£75k
- High early repayment charges on current mortgage (3-5%)
- Your lender offers further advances (not all do)
Check first: Not all lenders offer further advances. Major lenders that do: Nationwide, Halifax, HSBC, Santander. Always ask your current lender before exploring remortgage options.
Option 3: Personal Loans
Unsecured personal loans are fast to arrange but more expensive than secured borrowing. Best for smaller projects or when speed is essential. According to Bank of England data, average personal loan rates for home improvements range from 6-14% APR depending on credit profile.
| Loan Amount | Typical APR | 5-Year Monthly | Total Paid |
|---|---|---|---|
| £10,000 | 7.9% | £202 | £12,120 |
| £25,000 | 6.9% | £494 | £29,640 |
| £40,000 | 6.4% | £782 | £46,920 |
| £50,000 | 6.9% | £988 | £59,280 |
* Rates shown are representative examples. Your rate depends on credit score and lender. Best rates require 700+ credit score.
Pros & Cons
Advantages
- • Extremely fast (1-3 days approval)
- • No property risk
- • No valuation needed
- • Simple online application
- • Fixed monthly payments
Disadvantages
- • Much higher interest (6-14%)
- • Maximum £50k typically
- • Shorter terms (5-7 years)
- • Higher monthly payments
- • Affects credit utilization
When to Use Personal Loans
- Small projects under £30k
- Need money urgently (builder ready to start)
- Don't want to touch mortgage
- Planning to sell property within 5 years
Compare carefully: A £50k personal loan at 7% APR over 5 years costs £9,280 in interest. The same amount on a mortgage at 3.5% over 25 years costs £31,100 in interest but monthly payments are much lower (£250 vs £988).
Option 4: Builder Staged Payment Plans
Most builders work on staged payment schedules, matching payments to work completed. This spreads the cost across 3-6 months of construction.
Typical Payment Schedule
On contract signing, before work starts
Groundwork, foundations, DPC laid, first building control inspection passed
Walls up, roof on, windows/doors in, extension is watertight
Electrics, plumbing, heating first fix, plastering done
All work complete, snagging list addressed, building control sign-off obtained
Builder Finance Options
Some larger construction companies offer 0% payment plans or financing through third parties:
- 0% for 12 months: Pay nothing during construction, lump sum at end
- Extended terms: 2-5 years at 5-9% APR
- Reality check: "Free" financing is usually priced into the quote (5-10% higher)
Advantages of Staged Payments
- Risk management: Only pay for completed work
- Leverage: Withhold final payment until snagging complete
- Cashflow: Spread payments over 3-6 months
- Flexibility: Can combine with savings + small loan
Other Financing Options
Equity Release (Age 55+)
Lifetime mortgages allow homeowners 55+ to release equity without monthly payments. Interest rolls up and is repaid when property is sold. According to the Equity Release Council, these products are regulated by the FCA and must include a no-negative-equity guarantee.
Compound Interest Example
When to consider: No other income to support monthly payments, planning to stay in home long-term, happy for inheritance to reduce. Not suitable if you need to move within 10 years or want to preserve full estate value.
Credit Cards (Materials Only)
0% balance transfer cards can fund materials purchases if you can pay off within the promotional period:
- Realistic for £5k-£15k only (materials portion of project)
- 0% periods: 20-28 months typical, 3% balance transfer fee
- Warning: Rates jump to 25-35% after promotional period
- Must have solid repayment plan within 0% period
Government Schemes & Grants
Limited government support available for specific circumstances:
- Disabled Facilities Grant: Up to £30k for accessibility adaptations (means-tested, via local council)
- ECO4 Scheme: Insulation and energy efficiency grants (income-qualified or low EPC rating)
- Local authority loans: Some councils offer low-interest home improvement loans. Check your borough's housing department or visit GOV.UK housing services
Complete Financing Comparison
| Option | Amount | Interest Rate | Timeline | Best For |
|---|---|---|---|---|
| Remortgage | £50k-£150k | 2.5-5% | 4-8 weeks | Large projects, high current rate |
| Further Advance | £20k-£75k | 3-7% | 4-6 weeks | Good current rate, mid-size project |
| Personal Loan | £5k-£50k | 6-14% | 1-3 days | Small projects, need speed |
| Builder Finance | Varies | 0-10% | Immediate | Spread cost over build period |
| Equity Release | £20k-£200k | 5.5-7.5% | 4-8 weeks | Age 55+, no income proof |
Which Option Is Right for You?
Choose Remortgage If:
- ✓ Your project costs £75,000 or more
- ✓ Your current mortgage rate is above 4-5%
- ✓ You're near the end of a fixed-rate deal
- ✓ You have 4-8 weeks before needing funds
- ✓ You want the absolute lowest interest rate
Choose Further Advance If:
- ✓ Your current mortgage rate is excellent (below 3%)
- ✓ Project size is £20k-£75k
- ✓ Early repayment charges are high (3-5%)
- ✓ Your lender offers further advances
- ✓ You want to keep your existing mortgage deal
Choose Personal Loan If:
- ✓ Project is under £30k
- ✓ You need money within days
- ✓ Builder is ready to start immediately
- ✓ You have excellent credit (700+)
- ✓ You plan to sell within 5-7 years
Choose Builder Finance If:
- ✓ You have some cash but need to spread payments
- ✓ You want to match payments to work stages
- ✓ Builder offers competitive 0% or low-rate deal
- ✓ Risk management is important to you
Calculate Your Extension Cost First
Before arranging finance, get an accurate cost estimate. Our free calculator uses real London project data.
Frequently Asked Questions
Can I get a mortgage just for an extension?
Yes, through a further advance (also called additional borrowing). This is a top-up to your existing mortgage specifically for home improvements. You can borrow £20k-£75k typically, and it's added to your existing mortgage. Rates are usually 0.5-1% higher than your main mortgage rate.
What credit score do I need to finance an extension?
For remortgage: 680+ credit score gets best rates (2.5-4%). For further advance: 650+ usually acceptable. For personal loans: 700+ for best rates (6-8%), 600+ for standard rates (10-14%). Self-employed borrowers may need 2+ years of accounts.
Should I wait and save vs borrowing for an extension?
Time value analysis: If saving £1,000/month for a £75k extension = 6+ years. During that time: house prices may rise, you miss 6 years of enjoying the space, and rental market continues rising. If borrowing costs £200/month but you gain immediate use, most choose to borrow and enjoy the space now.
What's the cheapest way to finance an extension?
For projects £75k+: Remortgage offers lowest rates (2.5-5% typically). For £20k-£75k: Further advance or secured loan (3-7%). For under £20k: 0% credit cards for materials + savings for labor. Always compare total cost including fees over the full term.
Can I finance an extension if I'm self-employed?
Yes. Most lenders require 2 years of accounts (some accept 1 year). They typically average your last 2-3 years' net profit. You'll need: SA302 forms (tax calculations), tax year overviews, and possibly business bank statements. Self-employed rates are same as employed if accounts are strong.
What if I can't get approved for financing?
Options if declined: 1) Improve credit score over 6-12 months, 2) Save larger deposit to reduce LTV, 3) Consider guarantor loans, 4) Use specialist bad credit lenders (higher rates), 5) Scale down project to affordable amount, 6) Delay project until circumstances improve. A mortgage broker can advise on improving application.
Summary
Most London extension projects are financed through remortgage or further advance, offering the lowest interest rates (2.5-7%). The right choice depends on your project size, timeline, and current mortgage situation.
Key action steps:
- 1Get accurate cost estimate (include 10-20% contingency)
- 2Check if your lender offers further advances (if your rate is good)
- 3Compare remortgage vs further advance rates + fees
- 4Get agreement in principle before commissioning full design
- 5Factor financing timeline into project schedule (4-8 weeks typical)
Use our free calculator to get an accurate budget before arranging financing.