Beware, LSAP is not as good as it first looks, especially for higher rate tax players. It is a taxable allowance and at a rate the government set. For example:
When borrowing £8500 interest free, you have to declare it on your tax form as a benefit which is then taxed. You benefit by not paying interest on the £8500. The Government decide the interest rate that would have applied. Curently approx 7% (this is nothing to do ith the interest rate you are paying on the rest of your mortgage.)
So assuming 7% is the rate the government decide, then when borrowing £8500 you should now pay tax on 7% of £8500, which is £595 per year if you are taxed at £40% (and I know a lot aren't) this means you have paid £238 to borrow the £8500. £238 is £2.8 % of £8500, so in effect you have not had an interest free loan, but a loan that has an equivalent interest of 2.8 %. (There are several mortgage offers which have you actually paying quite close to this rate)
Then you have to pay it back at 10% per year for 10 years (OK after a 2 year grace period).ie £71 per month. How much more mortgage could you have got for paying an extra £71 per month over 25 years? (Can't do this maths but a lot more that £8500)
For some, if you can't increase you mortgage, or you have the ability to pay back then it has some benefit. However if you just want to increase the amount you are borrowing, then I would seriously consider extending your mortgage over 25 years.
Oh, don't forget your solicitor will have to research this deal to include the MOD as having an 'interest' in your property (which may incur costs) and finally, when I tried to pay mine back early, it took 3 months for them to sort it out with all the hidden charges continuing.
All in all, more hassle than its worth!