'An extension added £100,000 to the value of our home'

Struggling for space? In the current climate, building an extension is the easiest way to give your family room to grow – and add value too.

If you want to see why "don't move, improve" is the perfect catchphrase for today's volatile housing market, just ask Nick and Katie White. The couple, who have two children aged two and four, considered moving from their pretty three-bedroom Victorian house in Weybridge, Surrey, to a larger home. "But we'd have to spend at least £200,000 more in this area, especially once you take stamp duty and the estate agent's fees into account. So it fast became obvious there was a better alternative – to extend," says Katie.

So the White family commissioned two phases of work. Firstly, they added a bedroom and extra bathroom in the loft costing about £30,000, but adding at least £50,000 to the property's value. Then they added a conservatory, extending what was a cottage-style reception room into a large family space; that, too, cost £30,000 and added around £50,000 to the home's overall value.

Now the four-bedroom house is worth more than £500,000 – a 20 per cent rise, even in today's market, in return for a 12 per cent outlay.

Ironically, the downturn is a good time for extending a home. "There are lots of builders looking for work so when an estimate came in at £45,000 it was quite easy to negotiate the price down to £30,000. They needed the work and compromised on price," explains Katie, who works as a public relations executive for architectural practice PRP.

The high cost of moving in 2011 – pushed upwards by this month's VAT rise – is proving a disincentive to prospective house buyers.

Surveys cost up to £1,000 and solicitors' fees £2,000; a mortgage valuation can be £150, but arrangement fees for the loan itself could be £700; council searches are £300 while removal costs routinely exceed £600. One of the biggest costs will be the estate agent's fees of between 1 per cent and 3.5 per cent, depending on whether you employ just one agency or more. On a £300,000 home to sell, this fee could easily hit £9,000.

The largest cost of all is stamp duty, now running from 1 per cent for homes costing £125,000 to £250,000 and then rising to 4 per cent for homes costing £500,000 or more. So if you are moving up the ladder and sell your home for £300,000 and then buy your next one for, say, £400,000 your stamp duty will be a hefty £12,000. Add the other fees and the cost of moving could easily be £20,000. And from April, the buyers of homes costing £1m or more will pay the new 5 per cent rate.

A further disincentive is that most property industry forecasters say house prices will drift down, at least outside of London, by up to 10 per cent in the next 12 months. Some predict a slight recovery next year but others say it will be 2013 before prices rise again.

Such high moving costs and long-term uncertainty over house prices combine to reduce the number of house moves per year from a peak of some 1.2m in 2006 to little over 60 per cent of that figure now. Instead, more people improve and enlarge their existing homes.

"Putting bedrooms in the loft is one of the most profitable ways of adding value. They're relatively easy and you can go in from above, without too much disturbance. If you spend £50,000 you're likely to make a profit," says Robin Chatwin, of Savills.

But the size of your home to begin with will determine precisely how much value you add by extending. Extensions that add key living space, such as bedrooms, kitchens and dining areas, are the most valuable. This is particularly true of making a three-bedroom property into a four-bedroom, as it really increases the number of potential buyers. But there's a diminishing return in terms of pounds per square foot by extending – the sixth bedroom won't be worth as much as the third, for example," explains Douglas Sleaper, of Townends estate agents.

Research by Savills shows that the price of a four-bedroom home is, on average, 71 per cent more than a three-bedroom property which, in turn, is typically 59 per cent more expensive than a two-bedroom home.

But there are risks if you make a house unusually large and potentially "over-developed" for the tone and look of a street. When you come to sell, the home may then appear expensive compared to neighbouring ones that – from the outside at least – look similar.

"A three-bedroom house extended to five bedrooms by using up a large proportion of the garden is likely to have more people living in it, who have less outside space to enjoy. This reduces the potential market size and therefore holds the price-gain down," says Sleaper.

Similarly, basement extensions – which are feasible only on terraced houses where there is already at least a coal cellar capable of expansion – tend to be so expensive that the overall value of a home may not rise as much as the cost of the work.

The best option of all appears to be an extension that provides a modest increase in the house, immediately adds more value than it costs, and is affordable enough to simultaneously encourage nearby home owners to extend as well.

"Our neighbours have seen what can be done with our home, moving from three to four bedrooms, and several are doing the same. It's good to be a trend-setter and to help lift up the entire area," explains Katie White.

It's even better to increase the value of your home despite the woeful housing market – and get more space for far less cost than moving house.

Changing rooms

* Always check whether your expansion plans require planning permission – in some cases you can extend by 15 per cent of the original volume of the house without requiring council consent. Check on www.planningportal.gov.uk.

* Most home owners fund large-scale work such as this through re-mortgaging or "drawing down" funds from an existing flexible mortgage. With today's lending restrictions, owners with substantial equity are likely to find it straightforward to get a loan, but those with little equity will find it tougher.

* Melanie Bien of mortgage broker Private Finance says: "If you have a high loan-to-value in the first instance – more than 85 per cent – you're likely to struggle to get a further advance even if the work would add value and therefore ultimately reduce that LTV."

Guide prices

* One-room ground floor extension: £7,000 to £35,000

* Conservatory: £6,000 to £35,000

* Basement: £40,000 to £100,000

* Loft conversion to bedroom: £18,000 to £50,000

* Garage conversion to bedroom: £9,000 to £25,000