Extending a home, rather than selling up, is a sensible option for many people who have discovered just how expensive moving can be: the mere mention of the price of stamp duty on second-hand houses can raise blood pressure to perilous heights in many Irish households. Mr and Mrs M from Wicklow decided to extend part of their house, recently valued at £175,000. They needed to borrow an extra £20,000, which they wanted to add to their existing First National mortgage balance, now just £35,000. Since they had just finished paying off a £5,000 home renovation bank loan they took out a few years ago, they figured the house extension borrowings, spread out over the remaining 13 years of their mortgage, would cost the equivalent of the bank loan. "In other words, we wouldn't be paying any extra than we had been for the last few years," Mrs M said.
The problem? First National insisted that the Ms take out a new mortgage for £55,000 rather than top up the existing one. The interest rate would be the same, but the costs - for new land registry fees, new legal searches, valuation fees, administration fees, stamp duty and solicitors' fees would amount to £500.
"I accepted that a top-up loan would incur some administration and revaluation of the property, but all the rest did not make sense as I didn't want a new mortgage - just an extension of the old one, which is small by today's standards," says Mrs M. Inquiries with friends and relations confirmed what she suspected: that not all lenders charge so much or require a complete new mortgage procedure. According to Richard Eberle, of REA Mortgage Services, the fee-based mortgage adviser, "the system varies between lenders but it is usually not so difficult, or expensive, to get a top-up, mainly because the lender already has a lien on the property". The EBS Building Society confirmed it does not charge existing customers any fee for topping up a mortgage.
By charging as much as £500 for a top-up loan, a lender is running the risk of its client switching mortgage companies altogether, says Mr Eberle. "It will cost you at least that much to move, but if you are facing a £500 bill anyway, why not use it as a reason to get a better overall interest rate. You will also benefit from the discount first-year rate."
A spokeperson for First National said that the procedure is not as comprehensive in taking out a topped up mortgage as it would be taking out a new one, but the "legal requirements are still there and need to be fulfilled. This incurs costs."
Irish Permanent, whose fees, according to a spokesman would be very similar to First National's for arranging top-up loans, said the charges Mrs M described "are unavoidable. Just because the likes of the EBS don't pass them on doesn't mean they aren't necessary, even for topping up a loan." Mrs M says she and her husband will be seriously considering moving lenders in order to avoid paying the £500 worth of fees and in order to secure a better lending rate. "Since we are entitled to free shares from the first national, we won't be extending the house, and moving the mortgage, until after our shares have been allocated next month."
