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Move or improve?
By Laura Howard
The housing market downturn, which started in 2007, shows no sign of easing up before the end of 2008, spelling potential problems for thousands of households. While many people have put off their plans to buy a new home until things are more settled, many families struggling with a lack of living space have no choice.
Moving to a bigger house in the current housing market could be a nightmare. Not only will the whole process take longer to complete, but you'll also face much larger mortgage payments at a time when you're likely to be feeling the pinch.
That's why Jackie Carr from Maidenhead in Berkshire opted to extend her current home rather than move when it turned out that a surprise pregnancy meant she and her husband, Mike, were expecting twins.
"We already had two children and simply could not afford to move from our two-bedroom terrace, which we bought for ?235,000 three years ago," says Jackie, a 37-year-old full-time mum. "So we had a conservatory built, and this freed up one of the downstairs rooms that we turned into our bedroom. The work cost ?9,000, which thankfully Mike's mum offered to pay for."
It looks like the Carrs made the right decision, and as the housing market continues to slow, more space-strapped families will be making similar choices. House prices continue to fall, and activity in the property market has also slowed. At the same time, mortgages are still more expensive than they have been in the recent past and lenders are demanding bigger deposits from borrowers.
Extend, renovate, revamp
One of these homes belongs to Lee Emery, 29, and his partner, Lucy Pope, 28, who bought their first home in Iford, Bournemouth, back in 2006. The pair paid ?213,000 for the two-bedroom bungalow which was in need of extensive repair.
"I enjoy DIY and Lucy doesn't object to getting her hands dirty so our intention was to do up the property, make some money and buy a bigger family home a couple of years down the line," explains Lee, a public sector worker.
Unfortunately, the credit crunch and falling house prices put paid to their plans, so the couple has opted to do work on their current house. This month, a team of builders will start converting the loft of the bungalow into two large bedrooms - one with en suite and the other one with a family bathroom.
Before you roll up your sleeves and follow Lee and Lucy's example, however, there are a few things you need to consider. It's not a straightforward case of 'deciding and doing' - planning permission may be required and building regulations must be met. Jackie and Mike were lucky in that their conservatory was regarded as a 'temporary structure' and so did not require planning permission. "We couldn't have afforded the planning application and architect's fees for a permanent structure," says Jackie.
But, depending on the type of improvement, other homeowners simply have to swallow these costs. In most cases, planning permission will be required if the extension exceeds 70 cubic metres of the property's original space.
For terraced houses, this limit is lower at 50 cubic metres of extra volume, while larger houses can be extended by up to 115 cubic metres without planning permission. For more details about planning applications and costs, visit planningportal.gov.uk.
You will also need to adhere to building regulations which ensure all materials are fireproof and access around the house is not blocked. In this case, it's crucial to hire professionals and avoid the temptation of DIY beyond your means.
Dean Sanderson, managing director of Sanderson James estate agents in Manchester, has been flabbergasted by some of the home 'improvements' he has seen which have actually knocked thousands of pounds off the property's value.
"I've seen loft conversions where people have removed the lateral restraints [the vertical timbers in the middle of the loft holding up the ceiling] to create a bigger space. But the purpose of these is to support the entire structure of the house," he says.
There are also other considerations. If your property is leasehold, you will need clearance from the freeholder before embarking on any major home improvements, even if you have planning permission and have met building regulations.
And don't forget insurance. Emma Holyer, a spokesperson at LV=, says: "Anyone planning an extension or significant building work should inform their insurer before they start and check that their builders are also fully insured." When the work is complete, you will also need to reassess any increased value in building and contents cover, she adds.
Lee and Lucy didn't need planning permission because their improvements didn't exceed 70 cubic metres - but the cost of the work will still set them back between ?40,000 and ?55,000, according to a range of quotes obtained by Lee.
Raising the money
One option is to take a further advance on your mortgage. However, this is becoming increasingly difficult, warns Louise Cuming, head of mortgages at Moneysupermarket.com. "Not only is the value of houses falling, many lenders will now only lend up to 90% of this new lesser value. Also, the additional part of the loan is likely to be priced on the lender's more expensive standard variable rate rather than any deal rate that applies to the rest of the mortgage."
Lee and Lucy, who opted for a further advance, are lucky that they had their property valued before house prices tumbled. "The house was valued at ?290,000 which meant we were able to release ?55,000, taking our outstanding mortgage up to ?260,000," says Lee.
The well-timed valuation also means the couple have a financial buffer, which could prove crucial, says Lee. "Our home is an old building and no doubt there'll be unforeseen expenses - complications with boilers, piping and knock-on effects on the rest of the property like cracks in the wall. But, even if the buffer runs out, I'll finish the project off myself by hanging doors, tiling and decorating."
If your valuation was not so well-timed, making a further advance impossible, there's always the option of a secured loan. "These tend to be easier to qualify for and rates of less than 7% may be available, which is cheaper than most SVRs," says Cuming. However, even secured lending is becoming harder to access.
Credit crunched?
In any case, home-improvers should tread cautiously around secured lending. They are otherwise known as 'second charge mortgages'. This means that, just like your primary mortgage, if you can't meet yours repayments your home is at risk and could be repossessed.
Providing your home improvement is going to cost less than ?25,000 - according to Alliance & Leicester the average cost is ?11,833 - an unsecured loan is a much better idea. According to Moneyfacts, this type of lending is one of the most flexible and free of charges.
It's also worth investigating credit cards that carry a 0% interest for a given time period.
Alternatively - if you have a good credit score - you could pay off any loan with a credit card that offers 0% on balance transfers, such as Capital One's Platinum card, which offers this perk until October 2009.
While borrowing in the current climate may not be ideal, the good news is that, providing the work is carried out professionally and to a high standard, you're likely to make up the expense through the increased value of your property.
According to research from GE Money Home Lending, the most value-adding home improvement is a loft conversion, which can increase the value of the average home by more than 12% (or ?22,898). Building an extension came next with a potential boost of ?19,800, while a conservatory could add ?12,229 to the price. But, given the uncertain outlook for the property market, home improvers would be wise to take this with a pinch of salt.
Lucy and Lee are hoping their loft conversion will boost the value of their home to about ?320,000 from its current ?260,000. "But whatever it's worth, we'll still have a bigger mortgage to pay, so we're not taking it lightly," says Lee.
On the other hand, Jackie and Mike, with their four children, simply don't have time to think about it. "We added this conservatory as we were desperate for more space and could not afford to buy a bigger home," says Jackie. "Having more room without the stress of moving has been fantastic, but we still have two kids to a room. In the next few years, we'll have to think about more space again. It may have to be the loft next time."
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