Renovating on a budget

House prices are only just recovering from one of the worst crashes in history, but would-be first-time buyers are unlikely to be feeling the benefit.

According to the latest house price data from Nationwide, the average cost of a home in May was £169,162 – having risen only 0.5% during the month.

And with mortgage lenders still only parting with a maximum 90% of the property value, first-timers will need to get their hands on a staggering £17,000 before they can even think of leaving the starting blocks.

If you're an existing homeowner, upsizing to a bigger property won't be much cheaper. As well as facing a larger mortgage, you'll need to stump up thousands of pounds in related costs such as stamp duty, legal and estate agent fees, and removals.

It's little wonder then that a growing number of people are choosing to either buy a rundown home on the cheap and renovate it themselves or stay put and extend their current home.

However, if you're considering going down either of these routes, be warned: carrying out unnecessary work, failing to plan or budget, or cutting corners to save money could scupper all your grand plans.

What to consider when renovating

The first thing to recognise is that, post-credit crunch, you should carry out any renovations to enhance your home as a living space for you and your family rather than to boost its value on the housing market.

"Work may increase your home's saleability, but its value can't extend too far beyond what similar homes on the same road are worth," warns Tim Taylor, director at London-based estate agent Wenlock & Taylor.

Taylor says that the exception to this rule is a loft or garage conversion as this creates extra accommodation.

"If you change a two-bedroom home into a three-bedroom one it will increase its value – yet even this still probably won't be enough to cover the cost of the work," he adds.

Also, homes that are in need of renovation are actually in high demand, which means they attract their own premiums. "We have some antiquated homes for sale that buyers queue up for as they want to make their own mark on the property," says Taylor.

"We find this approach is more popular than paying for someone else's improvements such as new kitchens and bathrooms."

Once you've established what amount and sort of work needs to be done, you'll need to spend almost as long on the planning and budgeting as on the renovation itself.

This is because under-budgeting is by far the single most common mistake people make when they embark on home improvements.

To work out a realistic budget you need to do some thorough research, comparing the prices of materials and labour, using any contacts or recommendations. Don't forget to factor in a contingency fund to pay for unforeseen problems.

Of course, the temptation is to try to keep down costs by any means possible – including carrying out the work yourself. But this is where homebuyers and movers enter another potential danger zone.

DIY red tape

According to recent research published by Santander Insurance UK, 39% of Britons are planning to make home improvements during the next 12 months and, as family budgets are still on a shoe-string, 72% of them plan to carry out some or all of the work themselves.

However, nearly one in five of these homeowners (14%) will cause damage to their home in the process, at an average cost of £344.

Miguel Sard, chief executive of Santander Insurance UK, says: "This is traditionally the season when homeowners take time out to beautify their home or make essential repairs.

But while it might be understandable to try to tackle such things as constructing a kitchen unit yourself, when it comes to electrics or major construction work, it's not worth taking the risk. Get it done professionally."

With some types of renovations, the law will take this decision out of your hands. In 2005, for example, the government introduced electrical safety rules across England and Wales that state any fixed electrical installation work carried out in the home must meet building regulations – in other words, must be completed by a certified electrician.

You can find one at the electricians' trade body, niceic.com.

And if you decide to fit your own windows, you'll be breaking the law unless you have a FENSA certificate. This is documentary evidence that the installation work has been self-certified as complying with building regulations.

(Any double-glazing company you use will also need to produce this certificate.) Internal renovations, such as new staircases or knocking down walls, will also need to adhere to building regulations.

If you're making major renovations that will alter the structure of your home, you may have to apply for planning permission from your local authority – usually at a cost of around £1,000. In

October 2008, however, the government relaxed the rules on this. Now some renovations, such as loft conversions, don't require planning permission, so long as the work falls within certain criteria.

Full details, as well as the process and costs of applying, are available at planningportal.gov.uk.

If your property is leasehold, even if planning permission is granted and building regulations are met, you'll still need to get the official green light from the freeholder before you can go ahead with major renovations.

Be aware of building 'cowboys'

However, finding a reputable builder to carry out this work can feel like searching for a needle in a haystack.

Further research from Santander Insurance UK revealed that nearly one in five (18%) of British homeowners have fallen victim to sloppy workmen who have caused damage to the tune of an average £1,592 for each botched job.

"Unfortunately, anyone can call themselves a builder – and the damage caused by rogue tradesmen is staggering," says Sard. "This underlines how important it is not to go straight for the cheapest quote without checking credentials first."

The most obvious way to reduce the chances of encountering an unscrupulous builder is by using a firm belonging to a trade body, such as the Federation of Master Builders (FMB).

Brian Berry, head of external affairs at the FMB, says: "All our members have had to submit six references and they must all carry public liability insurance in the event things go wrong."

Consumers using an FMB-registered builder will also benefit from its official complaints-handling procedure.

"Usually, once a complaint is reported to the FMB, it's resolved between the customer and the builder themselves, but if things escalate, it's taken to an independent arbitration service – and both parties must abide by the arbitrator's final decision," says Berry.

However, of the estimated 180,000 building contractors in the UK, just 11,000 are FMB members.

Even dealing with a builder who is recommended, reliable and registered won't all be plain sailing. This is why you need to set down well in advance such factors as the cost for each stage of the renovation, when the fee is payable, and a planned timeframe for the work.

Advance payments, particularly at the start of the job, should also be avoided, says Sard. "Don't give into demands for cash payments either – it's normally a sign that the workmen are operating on the black market."

Once renovations are complete you should contact your home insurer before the dust settles.

"It's likely that making major alterations to your home will prompt the need to review your buildings insurance cover, which is calculated on how much it will cost to rebuild your home rather than its market value," explains John Miles, head of home insurance at gocompare.com.

"If subsidence occurs to a new extension, for example, and you have failed to disclose it to your insurer, you won't be covered."

You can use a rebuild cost calculator online at abi.bcis.co.uk to assess how much your new-look home will need to be insured for.

THE BASICS: what you need to know

Loft conversions: You need to apply for planning permission unless the additional roof space is less than 40 cubic metres for terraced houses, or 50 cubic metres for semis and detached houses. All materials need to meet building regulations.
Building a conservatory: You need to seek planning permission unless the conservatory takes up less than half the area of the land around the house. All materials used need to conform to building regulations.
Garage conversions: Since October 2008, planning permission is not required for garage renovations, so long as it remains single storey and no extra land is used. Go to planning-portal.gov.uk for details.
Electrics: Since 2005, any fixed electrical installation work carried out in the home must meet building regulations, which means they must be carried out by a certified electrician.

Case Study:
Laura and Nigel Sparks moved into their three-bed home in Sale, Cheshire, this spring and are about to embark on a top-to-bottom renovation.

"The property, which is made from reclaimed Victorian bricks, is only 16 years old but it's very tired and rundown. We bought it under the market value for £250,000," says Laura, a 32-year-old marketing consultant for a healthcare company.

The Sparks intend to carry out the renovations in two stages. First, they are going to replace the windows, fit a new bathroom, re-plaster and decorate.

The conservative budget of £6,000 the pair has allocated to this part of the project is only achievable because Nigel, who has his own double-glazing repair business, is going to carry out most of the work himself.

"Labour is always the most expensive part of any home improvement bill so, where we can, we will try to avoid paying for it," says Laura.

When the first stage is complete, Laura and 34-year-old Nigel intend to have the house revalued, and then borrow more against their mortgage. This loan – combined with savings – will fund the second and main part of the renovation.

"The house is currently in an L-shape and we want to extend it into a square," says Laura. "In the process, we also want to make the downstairs completely open-plan with a folding glass-door divider.

We are hoping to complete the extension for £40,000, but will budget for up to £60,000, in case we encounter major problems along the way."

The Sparks aim to complete the project by 2011. They envisage the home will be worth £320,000 – repaying them for the cost of the work.