Home improvement effect on equity

magn8p

Sorry if this is a re-post, but I couldn't find a a related article.

I am thinking of building a conservatory and from what I read on the web, a conservatory increases the value of the house roughly by 7%.

I bought the house with 10% deposit and over the 2 years, I think the repayments will be worth up 3% (I believe the majority of the repayments in the initial years are lost in the form of interest). Let's assume the value of the houses increased by 7% in 2 years in my area, making my equity worth 20%.

So, I am wondering if constructing a conservatory helps increase my equity when I re-mortgage my property? Would my equity rise from 20% to 27% of the house?

Sorry for the multi-layered question, the conservatory is not a necessity at the moment. We have some money that we saved up and we are in two minds - whether to invest in the property in the form of Loft Conversion or building a conservatory or simply pay a lump sum of our existing mortgage.

Which option do you think will have better returns? Many thanks.

SplanK

Depends how you see your house?


Do you see it as a home, short or long term? Do you plan to eventually move?


If short term, then I would not bother at all. Keep the money to one side or use it to keep up a good, well maintained home which will help sell your home quicker in the future for a slight premium. Or save it to help build a deposit for the next house....


If long term, then you mention there is no present necessity for the conservatory, if there is no need, why build it? Seems like a waste of money to me. You could overpay money on the mortgage instead and increase your LTV like that, as well as potentially saving you on interest over the term.




There is no g'tee that your house price will go up and its likely to return less value back to you than the cost of the build, but you would get a higher return from a sensible proper extension rather than a glass box.

magn8p

Thanks for that.

I will expand on some of the points I mentioned earlier to see if building a conservatory still makes sense.

1. Building it is not a necessity, but we could definitely do away with more room to fit a 6-seater dining table. At the moment, the moment we don't have a separate dining area and have managed to fit only a 2-seater dining table. So, we thought a good sized conservatory (and we are thinking about 5m x 3m) helps us in this aspect.

2. We simply don't want it to be a glass box like you have mentioned, so we decided to go with walls on each side to give it a feel of an extension but at the same time double-up like a sunroom. Please look at an example below:

https://drive.google.com/open?id=0ByzZtpskPzlFVXBaSU5TcUVtdXc

3. We intend to keep the property - live here for the next 5 years and if we decide to move out, we would rent it rather than sell it. And this is exactly why I asked the question about equity.

4. And the "7% increase in house value by building a conservatory" is borrowed from articles on the web and especially this one: http://www.telegraph.co.uk/finance/property/buying-selling-moving/7906602/Phil-Spencers-top-20-ways-to-add-value-to-your-home.html

5. With regards to a lump sum payment to the mortgage, I have worked out the math with the current interest rates, there isn't a massive savings interest rate wise - I think I would be saving around £175 a year by making a £10,000 payment. So that has prompted to think about adding more living space to the house. Having said that a full blown extension doesn't cater our needs of having a sun room and even if we can come up with a bespoke design, it would certainly be beyond our budget (which is £15,000).

SplanK

The other way to look at it is this..... ignore what it will give you in capital returns for the moment but think about it another way....


1. If you go for extension/conservatory.... you gain extra space that you can use and enjoy. Depends on your existing circumstances this can help keep you in the house for a longer time. Yes there will be an impact on LTV but only assuming
a. Its done with respect to the rest of the building and garden
b. There is market need for that sort of thing when it comes to sell/rent out.


2. If you don't go for the extension, then you can do what you like with the money. Assuming you have suitable savings already to fall back on if needed (3-6x months worth ideally?!), then throwing it towards the mortgage may not overall save you a hideous amount, however when it comes to renewal it may drop you down into the next bracket LTV wise offering lower mortgage repayments over the remaining term freeing up money to keep saving, or to enjoy in other areas.


The only person who can really decide on what to do is yourself. Its a gamble extending with a conservatory with what you will get back. There is no g'tee you will get back what you put in


Personally, I do not see a conservatory a suitable method of investment in property (although it does depend on the area and market). A proper extension yes in the right places and done with appreciation to the existing house, so really it should be down to what are your exact needs. Although, have you simply considered upping sticks now if the house is a little on the small side rather than extending and then moving? I would only really consider extending if I knew I was going to get >10 years out of it.

Doozergirl

All the articles ever written about the percentages that home improvements add to houses are specualtion at best and outright lies if people take it seriously.

These sorts of journalists are paid to produce generalistic information. There is no care for accuracy or any attempt to address the nuances of the many different property markets in our country.

7% is rubbish, but 7% of what? 7% more even once you paid out? What if the conservatory costs 10% of the property value?

What if your house is worth £1 million? Does an average conservatory add £70,000? What percentage of floor space does it even add? Property value is based on usable floorspace. Best value is obtained when the floorspace meets building regulations.

In some areas of the country, you would not even recoup the money spent on a conservatory. In others, like London where space is at a serious premium, people don't really value conservatories, they need year round usability.

The pic you linked to is quite attractive but note the external doors still in place from the main house to keep the conservatory outside the realm of building control. How the family can genuinely use that space as a dining room, lounge etc is beyond me when they are outbuildings.

I would not pay a penny more for a house with a conservatory.

I need to stop posting on conservatory threads. People's expectations of warm roofing and open plan spaces are just unrealistic.

pioneer22

Doozergirl wrote: »

All the articles ever written about the percentages that home improvements add to houses are specualtion at best and outright lies if people take it seriously.

These sorts of journalists are paid to produce generalistic information. There is no care for accuracy or any attempt to address the nuances of the many different property markets in our country.

7% is rubbish, but 7% of what? 7% more even once you paid out? What if the conservatory costs 10% of the property value?

What if your house is worth £1 million? Does an average conservatory add £70,000? What percentage of floor space does it even add? Property value is based on usable floorspace. Best value is obtained when the floorspace meets building regulations.

In some areas of the country, you would not even recoup the money spent on a conservatory. In others, like London where space is at a serious premium, people don't really value conservatories, they need year round usability.

The pic you linked to is quite attractive but note the external doors still in place from the main house to keep the conservatory outside the realm of building control. How the family can genuinely use that space as a dining room, lounge etc is beyond me when they are outbuildings.

I would not pay a penny more for a house with a conservatory.

I need to stop posting on conservatory threads. People's expectations of warm roofing and open plan spaces are just unrealistic.

Me neither, I wouldn't see it as an improvement and certainly wouldnt consider it a premium.

Davesnave

Your problem is that many people hate conservatories, and rightly, because they have bought or used one that was not designed or built very well and they had unrealistic expectations of it.

That's not stopped me building one to replace a previous lash-up, but as a year-round dining room I'm sure it would be a fail. I have one of those, so although I'll maybe eat in there only 70% of the year, the other 30% won't niggle with me.

Just one other point. Some people suffer from SAD. I probably did before I moved to a place with big skies and wide vistas. A conservatory works for me because it helps to keep my other living spaces bright in winter. If I had the option of a garden room without losing that light then I'd take it, but the other necessary alterations to the property are beyond my budget. The conservatory is just a bonus for money saved elsewhere in the rebuild.

magn8p

Thanks for that criticism, @Doozengirl. I agree with your point about 7% of what? - This is exactly why I posted a question here.

@Davesnave - Thanks for your points too. I don't suffer with SAD, but I come from a place where a day long bright, warm light is taken for granted and rooms with more light + 70% usability will tick most of my boxes.

I also checked with a local estate agent who sold quite a few houses in our new built estate and this is what he said:

"If you add a conservatory to the property it will definitely add value, typically between ten and fifteen thousand pounds depending on style, quality and size. It's always worth putting a thermostatic radiator in off the main heating system so it can be used as a room all year round"

DRP

magn8p wrote: »

Thanks for that criticism, @Doozengirl. I agree with your point about 7% of what? - This is exactly why I posted a question here.

@Davesnave - Thanks for your points too. I don't suffer with SAD, but I come from a place where a day long bright, warm light is taken for granted and rooms with more light + 70% usability will tick most of my boxes.

I also checked with a local estate agent who sold quite a few houses in our new built estate and this is what he said:

"If you add a conservatory to the property it will definitely add value, typically between ten and fifteen thousand pounds depending on style, quality and size. It's always worth putting a thermostatic radiator in off the main heating system so it can be used as a room all year round"

I thought part of the definition of a conservatory depended on it not being connected to the house central heating system...?

I could be mis-interpreting, but a quick google:

Building regulations state that any heating mechanism in a conservatory must be separate from the main house’s method of heating

Be wary of advice from non-experts like me (and estate agents!!!)

Hoploz

An additional room will usually add value.

A conservatory does not always do the same due to the thermal issues.

You may or may not be aware that there are different regulations you must adhere to for a room, or for a conservatory.

You could whack on a conservatory in a week or so and spend what, 15k? It has to be a separate room, divided by doors, with a certain % being glass, and no heating connected to the main house system. This would not be subject to Building Regulations. Easy to build, is unlikely to add very much value (some people will like it, others will hate it) But you will use it as you wish and if you want it then that's fine.

Or, you could build a proper room, with roof and walls. This would cost probably double. (?) This would require adherence to planning regs (may come under permitted development) and also building regulations approval. You could have the open plan thing with ordinary heating and make it properly incorporated into the house design. The likelihood is this would add approximately the amount it cost to the value of your house, posisibly a little more, due to the added square footage of proper usable space (as long as the size of your garden is not compromised too much). You'd then be able to use it as you please, year round, and know you've made your house more attractive to any buyer.

If you plan to sell straightaway, the spend/value increase thing is relevant. If you plan to stay for some years chances are house prices will increase and your investment will grow along with the rest of the house.

zoothornrollo_2

And how much a conversion / extension adds depends on the existing size of the property. I have a one-bed flat, and am converting the loft with an en-suite dormer bedroom (albeit quite small) so it will suddenly become a two-bed, two-bath/shower flat.
Expecting to add at least twice the cost of the project to the value.
Proportionately more than if you were turning a four-bed house into a five-bed.