Look around villages and country lanes these days, and you’ll see renovation work everywhere-as the economy slides back into a recession, many people are choosing to stay put and remodel or extend their existing homes. ‘The trend is largely related to job uncertainty and a resistance to making long-term decisions,’ says Rupert Coles of Prime Purchase. ‘Extending allows homeowners to feel they are moving forward without physically moving houses.’ Their choice can appear counterintuitive. After all, ‘in a slightly declining market, if you’re in a position to upsize, it makes sense to do so, as larger houses are more accessible than when the market is roaring away,’ explains Savills’ Louis de Soissons.
However, points out Ed Sugden of Property Vision, there are other factors at play, too-the cost of moving has increased dramatically in the past 15 years. ‘With an average 12% on the sale and buying cost for properties above £2 million, moving may be prohibitive for some people.’ Stamp Duty in particular (now at 7% for said properties) can make a huge difference. That said, renovation costs have also been rising. ‘As builders got busier and busier, prices moved accordingly,’ says Tom Hudson of Middleton Advisors.
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The Government’s decision to charge VAT at 20% on alterations to listed buildings, which were previously zero-rated, also weighs heavily against renovation work. So doing your maths is crucial to determining whether to move or improve. Mr Coles suggests you work out all the costs of buying a new home-not just Stamp Duty and Council Tax, but also agent, solicitor, surveyor and any other advisory fees, plus the costs of marketing your house, employing a removal company, doing Land Registry searches and porting your mortgage, if you have one-and compare this with how much you would spend if you stayed put and renovated.
In addition, you need to evaluate what will best protect your capital in the long term. Buying when prices are going down gives you the prospect of a future value increase, provided that you choose a high-quality property, which can be hard to find in this short-stocked market, and that you’re able to hold out and resell it in better times.
Renovating can prove an equally sound investment, but much hinges on the location, quality and size of your original home. ‘If your property is well sited but perhaps lacks enough room for you, then, subject to obtaining the appropriate consents, it would be better to improve rather than move,’ says Kevin Allen of John D. Wood. However, urges Mr Coles, you also need to make sure ‘the renovation matches the location: a basement extension with cinema in outer London is unlikely to add enough value to cover the cost of the expense, whereas in Sandbanks, or on the Wentworth estate, knocking down and rebuilding is extremely common. Ultimately, every area has a price ceiling’.
Remember that, in any location, an improvement only adds value if it respects the balance of the house. ‘Homeowners need to question whether the extension will have any effect on the overall aesthetics of the property and how it will impact on the layout and the flow,’ says James Grillo of Chesterton Humberts. Similarly, adds Mr Sugden, consider the size of your plot. ‘An eight-bedroom house would be considered too large for a quarter-acre garden.’ For these reasons, agents recommend getting professional advice on the end value your property is likely to have when the work is done. As a rule, explains Mr Grillo, ‘an extension would need to add at least 10% of the existing capital value and building costs. So for a £1 million home, the estimated valuation after the build needs to be £1.25 million if you’re considering spending £100,000 on the project.’
And because there’s more to life than money, question carefully what you don’t like about the current property. ‘An extra room over the garage doesn’t change someone’s life too considerably,’ says James Mackenzie of Strutt & Parker. ‘My advice would always be: are you happy? Is it just lack of space, or are there larger factors involved?’