More than 14 million people carried out a major home improvement over the last two years in order to improve it or to add significant value to it.
Research carried out by Lloyds Bank found that about two million people decided that even though they wanted to, they couldn’t afford to move and so chose the route of improvement to their existing property instead. A third of people made improvements to add value to their home while about 18 per cent of those surveyed said that rising house prices meant that they had bought smaller properties than they would have wanted to because of rising house prices.
While improving the value of their home was clearly a factor, 40 per cent of the people surveyed by Lloyds said that they wanted to improve the look of their house above other reasons. But a third of those questioned said that adding value was the main reason for making the improvement to their home with 22 per cent saying that a growing family meant that they had to make changes to their property.
Reasons for Improvement rather than Move
There are many reasons to choose home improvements over upping sticks and moving to a new property. Many of them are financial while others are more to do with individual household circumstances and attitudes. Here we look at the main reasons to choose improve rather than move:
Stamp duty:Stamp duty is charged at 1 per cent on properties that are sold for between £125,001 and £250,000. This increases to 7 per cent on those worth more than £2 million. Therefore, if you choose to move and buy a house which is worth £500,000, you’ll face a stamp duty bill of £15,000 – or 3 per cent of its value – before you’ve even moved in.
Estate agent’s fees: Most estate agents will charge you a percentage – known as a commission – of the sale value of your house when you complete the transaction. Assuming a 2% fee to help sell the average priced property (£270,000) that would be c. £6000 inc. VAT!
Upheaval: You may like your home and your neighbourhood. You may get on with your neighbours. Even though you may have done extensive research on another area, you won’t really know if you like it until it’s too late.
You’ve got the space for improvement: Adding another bedroom can, in some cases, add another £100,000 to the value of your house. Other improvements – like conservatories, extra bathrooms or kitchen extensions – may not have such a spectacular effect on the bottom line but they are likely to increase the value of your home by more than their cost. If you have loft space, then one of the fastest ways to improve the value of your home is to put an extra bedroom or two up there.
You don’t have much equity: If there’s not a lot of clear blue water between the value of your house and the outstanding balance of your mortgage, then you may struggle to fund the purchase of a new house. However, if you can secure a homeowner loan or remortgage with your existing lender, you could increase the value of your current home by making improvements.
You are in a fixed rate mortgage: If you sell up and move and don’t have enough equity to buy your new home outright, you’re going to need a new mortgage. That might mean that your new borrowing will be on worse terms than your existing mortgage.
Mortgage fees: While these are generally added to the total of the new loan, you’ll still be incurring substantial extra costs on your new borrowing when you move home. These fees could be as high as £3,000 so it’s worth considering if the extra interest payments would be better spent ploughed into your existing home.
Homeowner and secured loans are at record low rates: With Britain’s withdrawal from the EU now expected within the next three years, there is widely predicted to be a consequential economic slowdown. Mark Carney, the Governor of the Bank of England, has said that interest rates are likely to be cut further from what are already historic lows. This means that rates on lending are likely to become even cheaper than they currently are making homeowner or secured loans to fund improvements even more attractive than they currently are.
Oliver Jones has written for Solution Loans since 2016. His passion for personal finance comes through in the 200+ blog posts he's written since that time. His talent for explaining all things money means he's covered topics as diverse as...Read more about Oliver Jones