If your family is growing in number and you’re living in a small flat or townhouse, it is possible you are going to consider either moving to a bigger house or adding an extension. In the UK, most people would go for the latter option, owing to the statistics from the Office of National Statistics that the country spends close to £30 billion every year on home improvements, with a significant number being extensions.
But does adding a house extension make financial sense? Well, there are many factors that come into play when analysing that. Here are the main ones that can help you make a sound decision:
When planning to add an extension to your house, one of the most important things to evaluate is the financial return you’re likely to realise. In this case, you need to think medium-to long -term. This is because house prices tend to increase each year and the value may be double in the next 5 to 10 years. As you wait for the right value to ripen, you’ll also be enjoying staying in the house.
The short term benefits of making an extension are not very much inclined towards financial profit. All you might enjoy is improved comfort and quality of life. If your house is valued at, for instance, £200,000, you might incur up to £100,000 on the extension. The house can’t possibly sell at £300,000 or more immediately or a short time after the extension. It’ll probably fetch less than £270,000.
Your location very much influences the value and level of demand of your type of home. London is, for instance, a high-value area and it might pay off pretty well adding a kitchen, dining space, living area or even a basement to your house. With good market prices as well as easy and quick selling prospects, extending your home might make great financial sense even after a year or two. If you are in other parts of the country, where demand is low, you might need to think twice before throwing your money into an extension project.
There’s no doubt adding a reasonable amount of square footage to a home boosts its value. But how are you planning to finance the project? Is it through mortgage extension or savings? Well, if your property mortgage is say, £250,000, you might need to extend your mortgage by about £120,000 for the extension. This could plunge you into negative equity, which will not be sound in terms of financial profit.
If your equity is reasonably lower, say £70,000, you could finance the extension project with your savings plus extend your mortgage just a little to reduce the financial burden. That way, the equity of your home will be greater compared to the cost of extension, which is well worth it in the long run.
However, if you can fully finance the extension through your savings, the better, as this proffers great financial benefit not just in the short and medium run but in the long term as well. Once you get it right on the financing, everything else in the extension project can flow pretty well.
Disclosure: This is a featured post.