Improve your home for less
You might have had your heart set on moving home this year but, with property prices continuing south and good mortgage deals hard to come by, this might no longer be a viable option.
So if you’re desperate for more space or something new but can’t afford to up sticks and move, what are your alternatives? Making improvements to your home could free up some more space and make you happier staying in your home.
Ian Garner, managing director of Absolute Lofts in Wimbledon, London, says: “Even though the property market is on its knees, there’s still a big price disparity between three and four-bed homes. With loft conversions starting at £35,000, people who want more space are finding it’s the cheapest option.”
However, he warns against embarking on house improvements simply to increase the value of your property. “This is a very different climate from 2007. Back then, if you spent £40,000 on a loft conversion, your property would consequently rise in value by £80,000; now you’ll be lucky to break even.”
In this market, spending money on major building works purely to add value is a big gamble and probably a bad use of your cash. However, it's not such a bad idea if you want to extend your home or simply get it into shape.
What sort of changes?
The type of changes you make to your home will clearly depend on your circumstances, but some will be more practicable than others.
If you take a long-term view, a good extension or loft conversion that increases the floor-space in your home will help to add value. Conservatories, however, only work if they are big, well-constructed and complement the house. Small, badly fitted conservatories that look as though they’ve been tacked on can reduce the price as potential buyers add in the cost of replacing them.
There are of course other home improvements you can make that will pay off regardless of the market – for example, installing central heating or double glazing. But some ‘improvements’ should be avoided altogether.
For example, putting stone-cladding on the front of your house will bring down its price as it tends to look cheap. And adding a swimming pool could actually make it harder to sell because potential buyers could be put off by the perceived expense of maintaining it.
Decorating your home can be done relatively cheaply if you keep things simple and use eBay, for example, to look for ‘nearly new’ furniture. A fresh lick of paint won’t cost you too much either. If you’re selling, a clean, tidy home is a crucial starting point in this limp market. If you’re not, it will simply be a lot nicer to live in.
While the cost of home improvements may be a lot cheaper than moving, the money still has to come from somewhere. And in the current economic climate, that can be a problem. “We have a lot more enquiries than we do orders, as bonuses are not being paid and people are finding it hard to find the cash,” says Garner.
Your savings are likely to be the first port of call when thinking about making improvements to your home – with the official interest rate at a low of 0.5%, the returns you’re getting will be paltry anyway.
However, wiping out your savings entirely could be a bit rash, as Michelle Slade, spokesperson at data provider Moneyfacts, warns. “It’s true that savings aren’t earning as much as they used to, but they’re still capital. If you lose your job during the recession, what will you fall back on?”
Up until recently, many home-improvers chose to release equity from their properties by remortgaging or taking a further advance with their mortgage lender. Now, however, lenders are far more cautious.
Melanie Bien, director of mortgage broker Savills Private Finance, says: “If you already have a high loan-to-value of around 85% or above, it’s unlikely that a lender will lend you any more.
"With prices forecast to fall a further in 2009, they’re already concerned about the risk of negative equity [when your property is worth less than your mortgage]. But if you have a lot of equity in your home, a further advance should still be possible, so it’s worth talking to your lender.”
An unsecured personal loan is another option. Sainsbury’s Bank recently reported a whopping 53% rise in the number of personal loans being taken out for home improvements in 2008 from the previous year.
“Bear in mind that rates are priced on risk and not the cheap Bank of England base rate,” says Slade. “The risk is higher because the loan providers know that if you lose your job, you’ll default on the loan first rather than risk your home by missing a mortgage payment.”
Another option is to use a credit card that offers a free introductory period.
Stick to your budget
However you fund your home improvements, it’s crucial you set a budget from the outset. It’s also wise to have a contingency sum in the region of 10% of your total budget to pay for unforeseen extras.
The cheapest and least noticeable improvements to your home are often the most valuable. Installing loft insulation to the recommended requirements of 270mm would cost around £300, but you would save an estimated £205 a year from your energy bills, according to the Energy Saving Trust. Grants from the government and various energy providers are also available at its website, energysavingtrust.org.uk.
When you start improving your home, make sure you use the current hard times as a negotiating tool. A lot of builders are struggling for work at the moment, so you should get a good deal on most building work.
As well as bartering, you could always swap some additional payment for your own DIY skills, says Garner. “Many of our clients are now going for the ‘first fix’ option: we do all the structural work and they take over the painting and carpets. This wipes a third off the price.”
However, making changes to your home may also affect your insurance premiums, both during and after the the work, warns Darren Black, home product manager at price comparison site confused.com. “Most insurers won’t cover any damage caused as a result of builders or decorators being on your property, and that applies to customers who have taken out separate additional accidental damage cover. In fact, some insurers even suspend your cover completely until the workmen leave.”
Your insurance position could be affected too once the work’s done. “Adding a conservatory, for example, probably results in an extra entrance/exit to your home which can bump up your premiums,” says Black. “However, if the work involves adding improved locks to all your entrances and exits, your premiums will go down by at least 1%.”
Don’t forget the new planning permission rules
The government bought in new planning regulations on 1 October 2008 that mean homeowners may not have to apply for planning permission when building an extension – saving an average application cost of £1,000.
You can build at will, providing the work meets various conditions. These are some of the main ones, though you can find the full list at planningportal.gov.uk:
* The extension is no more than half the area of land around the original house (or ‘virgin’ house)
* It’s not forward of the principal elevation or side elevation fronting a highway
* It’s not higher than the highest part of the roof
* Side extensions are single storey with a maximum height of four metres and a width no more than half that of the original house
* Single-storey extensions to the rear are no higher than four metres
* Two-storey extensions are no closer than seven metres to any rear boundary
* There are no verandas, balconies or raised platforms
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.