Stone cladders beware: it'll cost you in the end

Improving your home is no guarantee that its value will rise, warns Dido Sandler

Homeowners, who are now seeing an upturn in property prices, are being warned against making home improvements in an attempt to boost the re-sale value of their property.

The warning comes as some building societies report an increase in borrowers undertaking home improvements. Birmingham Midshires reports a 50 per cent increase in home improvement loan applications this year.

If you're embellishing the home for your own use, fine. Indeed, a Halifax survey published yesterday says the main reason for home improvements is to raise the standard of living, although adding value to homes comes a close second.

But the Royal Institute of Chartered Surveyors (RICS) warns that improvers cannot be sure they stand to get their money back through increases in the value of their property, especially when labour costs and inconvenience are taken into account.

Then there are unforeseen risks, which can bump up the costs - the discovery of structural problems, for example.

A national survey by NatWest Bank revealsthe vast difference of expectations between home improvers and valuers (see table). Owners overestimate the amount that improvements can add to the value of their home. For example, 47 per cent believe that if they add a conservatory it will add more value than cost, compared with just 18 per cent of valuers. The majority of valuers believe no single improvement is worth the money. Particularly frowned upon are stone cladding, saunas and Jacuzzis.

Regionally, the figures tell some different stories. In London and the Southeast most surveyors believe adding an extra bedroom pays off. Compare this with the Northeast and Scotland where just 10 per cent and 19 per cent of valuers respectively said the added bedroom was a worthwhile investment.

The calculation as to whether a particular improvement is worthwhile is complicated by how you pay for it. If you have savings then these should be the first choice, simply because the amount of interest you will lose is almost certainly less than the cost of borrowing the money.

If you don't have savings, the next cheapest method of finance is to increase your mortgage. Such advances should not be a problem so long as the total loan remains at, say, no more than 90 to 95 per cent of the value of the property. The interest charged on the additional money is usually at the lender's standard mortgage rate - typically 6.99 per cent at present. But a few lenders, including the Birmingham Midshires and Principality building societies and Legal & General will charge the same rate that you are paying on the rest of your mortgage. This could mean a fixed-rate or discount on your additional loan.

With large loans of say, pounds 20,000, it may be worth re-mortgaging to take advantage of better rates. But you should counterbalance this against the potential loss of one party's Miras tax relief if two of you bought together before 1988; and, if you took out your mortgage before October 1995, a reduction in state support for meeting mortgage payments if a borrower with a newer mortgage becomes unemployed.

More expensive than increasing your mortgage is a "second charge" secured loan which may be available from lenders other than your own. These offer rates varying from 9.6 per cent to 20.9 per cent. Some require revaluation, administration and legal fees. Unsecured personal loans are the dearest option. Interest rates again depend on the sum and the term, and typically range from 12.9 to 25.9 per cent.

And if you do intend to make changes, here are some tips with a view to re-saleability:

q Improvements could be more worthwhile when they bring the standard up to that of neighbouring homes. However, Roy Ilott of Roy Ilott & Associates, a private practice surveyor, says people should avoid spending more than a particular area will take. He says if you live in a three-bedroom semi in the west-London suburb of Greenford, it's not much good having gold- plated taps in the bathroom. Swimming pools in general add no value either.

q Patrick Bunton of Bath-based mortgage advisers London & Country warns that cosmetic alterations such as a new kitchen may not be the next buyer's cup of tea. But if you make a structural improvement, like turning a three- bedroom semi with a boxroom into a place with four decent-sized bedrooms, you will take the property into a higher price category.

That said, some cosmetic improvements may make a property more saleable, if not more valuable. Mr Bunton says: "If you put in central heating, a new bathroom or kitchen, it will probably not get the money back pound- for-pound, but it will be easier to sell."

q Tony Copping Joyce, spokesman for RICS and senior partner of Copping Joyce Chartered Surveyors & Estate Agents, says improvements should be neutral to suit all tastes. Mr Ilott says if you're in a more designer- type area you can get away with more way-out stuff than in more conservative areas.

q If you're going to make changes, make sure they have an impact. A new kitchen makes more of an impression than if you spend your money on a 30-year-guaranteed paint finish.

q Before committing huge amounts of money Mr Ilott recommends consulting a surveyor. He says if you consult a kitchen planner he'll talk you into expensive work.

Dido Sandler works for the specialist

publication Financial Adviser

Is it worth improving your home?

Improvement Cost Does it add more value Owners' view Valuers' view

than cost?

Extra bedroom pounds 10,000 Yes 59% 39% No 38% 61%

Conservatory pounds 10,000 Yes 47% 18% No 49% 82%

New kitchen pounds 5,000 Yes 47% 26% No 50% 74%

Extra bathroom pounds 4,000 Yes 45% 33% No 52% 67%

Loft extension - Yes 36% 19% No 58% 51%

Double glazing pounds 5,000 Yes 36% 11% No 61% 89%

Stone cladding - Yes 6% 0% No 86% 100%

Source: NatWest/surveyors

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