Many of our home extension clients ask the same question: Does a home extension make financial sense? It’s a good question to ask. A home is one of the biggest purchases many of us will make, so we need to think carefully about the money we invest into it.
However, there are two ways to look at what ‘worth it’ means. The first is in simple financial terms – the cost of the extension. The second is in emotional terms – the value of the extension.
Here are some things to consider.
A home extension in simple financial terms
In terms of seeing a financial return, a home extension is something you should be thinking of as a medium- to long-term investment – say five or more years.
As house prices rise over time, if you plan to stay in your home longer term, it is likely that your home extension will become, in terms of financial profit, worth it. You will also have had years of enjoying your home extension.
If you’re not planning to stay where you are for the long term, we suggest a better way to realise value is to gain planning permission for the extension, but not build it. The value that planning permission will add to a property is typically far more than the cost of securing it, making it a ‘quick win’ in comparison to actually building the extension.
A home extension in your individual financial situation
It’s easy to look at the cost of a home extension in broad brush financial terms. But the reality is that it depends on your individual financial situation.
Let’s say your property is currently valued at £250,000. You want to add an extension that will cost £100,000 to build but your property would only be worth £325,000 afterwards, then in simple financial terms, the figures don’t add up. However, in some instances our clients will still consider proceeding with the project since overall they consider that it will be worth it. It’s to do with absolute value and there are two scenarios to illustrate the principle.
Let’s take the example of the £250,000 house and the £100,000 extension that would create a house worth £325,000 again.
In scenario one, the remaining mortgage on the house is £50,000 and you could finance the extension with savings or only a small extension to your mortgage. In this situation, although the crude numbers don’t add up (£250,000 + £100,000 does not equal £325,000), your equity in the property is much greater than the cost of the extension. In this instance, you may feel that a home extension is worth it.
On the other hand, let’s say your mortgage is £200,000 and you would need to extend the mortgage by £100,000 to finance the extension. In this scenario, the home extension would not be worth it, because you could be at risk of negative equity.
Of course, all this is very theoretical. The figures rely on knowing with absolute certainty what the house will be worth when the work is completed. In reality, this is difficult to know. Estate agents will be able to offer advice, but they will be rightly cautious when giving prices based on plans.
In our experience, the prices given after work has been completed are noticeably higher than they were when they were just plans on paper. This is because it is much easier to see what has been gained. Our projects also tend to have a wow factor that adds value in its own right. But even when a property is valued after a project has been completed it’s still only theoretical until it’s actually been sold. And who wants to build an extension then sell their home just to find out its true value?
Paying it forward…
“The house couldn’t breathe properly because it was painted outside and plastered inside. Everything we’ve done has helped it to breathe again. The dampness has almost gone and the cold you get in the winter is no longer there. It’s a complete revelation – we’ve gone from a very cold, damp house to a very warm, dry house.”
James, Communion client
As well as considering potential financial gain, it’s also worth remembering that a home extension can be a good way to solve common problems.
Could it fix the problem with the ageing, leaking conservatory? Will it give you a bigger kitchen that it will be easier to live life in? Will it improve the flow of your home? Will it mean you can open the back door and go straight into the garden? Will it give you space for an office? Does it provide a room so people can come and stay?
Often we work with people who will be looking to stay in their home for the foreseeable future. We often hear the term ‘forever home’. By undertaking the project they are hoping to create a home that really works for them, not to mention reduces future maintenance issues.
In effect, by completing the work our clients are looking to release long term value for themselves. They are effectively buying low (by buying at today’s prices) to be able to enjoy the future without needing to worry.
Because some things are more important
“There’s just so much space and light now. The communal area serves different purposes with a TV area and a kitchen. It means even though someone might be watching TV you can still have conversations together. There’s also still the lounge which we can use as a quiet area. There’s a lot more space to store the kids’ stuff and when they have friends round the space works so much better. We’re living together in a different way.”
There are also emotional considerations.
A bigger kitchen diner would let you entertain friends and spend more time together as a family. Swapping the positioning of the sitting room would let you enjoy the sunset sipping a glass of wine. Additional bedrooms would let you host family at Christmas. A more welcoming entrance would make you smile when you came home every day.
These experiences give almost priceless enjoyment and when your home extension is designed around these precise needs, they come as part of the package.
In other words, if your home extension creates your dream home and one you delight in living in, there will likely be a ‘value gain’ far greater than the financial cost. People spend a few thousand pounds each year to live in beautiful accommodation for two weeks when they go on holiday. For a similar sum each year in mortgage repayments, you could have a home that you live in and enjoy all year round. You’re releasing long term value, day by day, year by year. And all the time, the value of your asset is rising because it’s being filled with more and more happy experiences and precious memories.
What’s more important: cost or value?
You can – and should – look at a home extension in terms of the financial cost. You need to be sure that the investment you make in your home extension is one you can afford to make financially and won’t leave you in negative equity. But you should also look at a home extension in terms of the value it will give you.
If a home extension gives you the right amount of space in the right location and allows you to live your life as you choose, then we think it’s definitely ‘worth it’. Though the financial investment can be significant, the return on the investment is often greater still.
“I love, love love, my house.”