Renovating on a budget
If you're an existing homeowner, upsizing to a bigger property isn't easy in today's climate. 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, one in seven 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.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
The right to hold or use assets (generally property, but also vehicles) for a fixed period of time at a given price, without transfer of ownership, on the basis of a lease contract. Leasehold ownership of a residential property is simply a long tenancy, the right to occupation and use of the flat for a specified period – the ‘term’ of the lease, which is fixed at the beginning and so decreases in length year by year and the property can be bought and sold during that term. When new, leases are for 99 or 125 years until its eventual expiry, whereupon ownership of the property reverts to the landlord.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
This type of insurance covers the structure and fabric of your property – the bricks and mortar, not the contents (for which you need contents or home insurance). If you have a mortgage, the lender will insist you have a suitable buildings insurance policy in place. Many lenders offer their own building insurance policies, but you don’t have to buy it from your own lender but you have the option of shopping around. The insurance covers you for the rebuilding costs, not the market value of the property.