Falling property prices make home improvements a good bet - but do it properly.
With house prices expected to fall 7% this year, according to the Council of Mortgage Lenders, it's no wonder homeowners are worried about purchasing a new property.
Nobody wants to fork out thousands of pounds in moving expenses only to see their new home plummet in value.
The last two months have seen homemover mortgage business contract to just a fifth of all homeloans and mortgage advisers expect this to drop further over the next two months, according to the Intermediary Mortgage Lenders Association.
But remortgage business is looking healthy, accounting for half of all lending.
In other words people are switching their loans, but not their homes, and improving their existing property rather than buying a bigger one.
Adding value
According to Halifax, 28% of homeowners plan to undertake home improvements in the next 12 months, with nearly half intending to add £5,000 to the value of their home.
But homeowners have very different ideas to the professionals -- estate agents -- about what actually adds value.
While homeowners believe new kitchens and bathrooms are the most valuable improvements, estate agents say loft conversions and extensions are the real money makers -- doing both could add £42,000 to the value of your home.
Below are the improvements homeowners think would most increase the value of their property, compared to those recommended by estate agents:
Homeowners: Top 10 value adding improvements | Estate Agents: Recommended top 10 | Average £s added |
|---|---|---|
1) New kitchen | 1) Loft conversion | £22,300 (loft) |
2) New bathroom | 2) Add an extension | £19,271 (extension) |
3) Redecorate | 3) Build a conservatory | £11,904 (conservatory) |
4) Add an extension | 4) New kitchen | £8,250 (kitchen) |
5) Build a conservatory | 5) Add central heating | £6,147 (heating) |
6) Loft conversion | 6) Windows | £5,239 (windows) |
7) New windows | 7) New bathroom | £5,155 (bathroom) |
8) Add central heating | 8) Redecorate | £4,576 (redecorate) |
9) Add solar panelling | 9) Resurface the driveway | £3,928 (driveway) |
10) Resurface the driveway | 10) Add decking to the garden | £3,617 (decking) |
Source: GE Money Home Lending
Funding your project
If you have the money to fund your home improvements upfront, great, but it's far more likely you'll need to borrow. How you do it depends on the project. Wallpaper and paints could be put on the credit card, while bigger jobs might require a loan.
- A personal loan is good for modest amounts and is easy to arrange. The market is competitive and you can choose a repayment term to suit your circumstances -- although you will normally have to repay your loan within 10 years.
- A second charge or secured loan is more competitive, provided you have equity in your property. You can borrow large amounts and choose a long or short repayment term. But you are securing the debt against your property, meaning you could ultimately face repossession if you fall into arrears.
With both of these products you are protected by the Consumer Credit Act but not regulated by the Financial Services Authority -- meaning you have no access to its compensation schemes.
If you want the most competitive borrowing rate available try your mortgage lender.
- You could remortgage and increase your borrowing at the same time. This will be charged at a mortgage rate, either with the same lender or a new one. But there are costs involved, which will currently topple £1,000, and you may be tied into your current deal with expensive early repayment charges (ERCs).
Remember, although your monthly repayments will be lower than a loan, you will be repaying this debt over the remaining term of your mortgage which could make the overall borrowing cost higher. - Your lender may offer you a further advance or home improvement loan that does not require you to change your deal -- useful for those tied in with ERCs. It sits alongside your mortgage at a similar interest rate, but you can choose a shorter repayment term giving you a lower overall cost. Most lenders will levy an administration fee.
Both of these options are fully regulated but both involving securing your debt against your home.
With any DIY project consider your insurance needs. Check to see if you have accidental damage cover in your building and contents cover, and inform your buildings cover provider of any major changes you plan to make to your home. If you don't you could invalidate your policy.
British homeowners don't need much of an excuse to embark on a DIY project, so it's no surprise we are embracing improving over moving in the current market.
If you like where you live, the kids are in a decent school and you have room to extend your property, the arguments for sticking put are strong at a time when property prices look set to fall.
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