Moving home is never a decision based purely on financial interests. Naturally, emotions play a big part as well. Perhaps this is your first home together as a married couple, or maybe it just pains you to think about leaving a neighbourhood where you have made so many friends.
Yet finances inevitably play a big role in decisions about moving your home. Especially when you are weighing the financial pros and cons against staying put, and increasing the value of your property via home improvements for a hoped, future sale at a higher price.
Which option ultimately puts more money in your pocket – moving somewhere else (possibly cheaper), or improving? In this short guide, we’ll be exploring some of the advantages and disadvantages to both options. It’s important to note that each person’s situation is different and the best course of action will, therefore, vary. So do not take this content as financial advice – it is for inspiration and information purposes only.
Improving & Adding Value
If the thought of DIY or managing building contractors puts dread into your heart, then this option might not be for you. However, if you are prepared to put time, thought and effort into developing your property for a future sale, then it can be very worthwhile to explore whether you could earn more money in the longer term by investing improvements in the short term.
Once you have a clear picture of the potential costs and extra cash, you can then compare the figures to the potential figures involved with moving house (which we will cover below, shortly).
So, how much value can you really add to your home? This depends on a whole range of factors including the type and condition of your home right now, where you live and also the likely “price ceiling” in your local area (i.e. the point where properties probably won’t sell for any more, regardless of how much you improve your home).
The type of improvements you make to your home also plays a big role in how much value you can add. Generally speaking, the best way to add value is to increase the amount of space in your property. Two of the most effective options here are to put in an extra bedroom (which could add another 8.8% to your home’s value) or a loft conversion (about 7%).
When factoring in the extra value these additions could add, it’s vital to weigh these against the costs involved. A loft conversion, for instance, might cost £15,000 on the lower end of the scale or (in complex cases) well over £40,000. It makes little sense to invest in a loft conversion if it will cost you £40,000 but only potentially add £25,000 to the value of your home. If, however, it would cost around £15,000 to do the job, then a loft conversion starts to look more worthwhile.
Of course, assuming you want to go ahead you will need to figure out how to finance the home improvements you want to make. Here, it can help to speak to a mortgage adviser about your options. In some cases, remortgaging could open up a way to access capital and possibly even reduce your outgoings. For instance, if a 4.5% mortgage was switched to a 2% mortgage, then you could possibly borrow more from your lender to cover the home improvements you want, whilst also conceivably lowering your monthly repayments.
There are different ways to look at the possible financial benefits of moving compared to home improvements, and these can vary depending on your precise situation.
One possible scenario is that you downsize to a smaller home. Here, you could end up with more disposable income due to the lower monthly mortgage repayments involved (or possibly, you might not have a mortgage to pay at all if you own the new property outright).
Another way of looking at the financial value of moving home concerns future capital gains. Perhaps your current home has not risen much in value and is unlikely to do so in the near future. Yet the new property you are looking at has risen in value and is located in an area which is projected to experience further growth in house prices (which would build your equity).
You do need to consider the costs of moving home, however, which can be significant. Stamp duty can add thousands to the costs faced by homeowners looking to sell. You also face a set of solicitor’s fees, estate agent fees and van hire costs, too. Then there are the hidden costs of moving which we often fail to consider or notice, such as buying new uniforms for children who will be attending a different school once the move is complete.
You might also still need to spend money on your home prior to putting it on the market, such as putting fresh paint on the walls or maybe fitting a new bathroom.
From a financial perspective, it isn’t always easy to decide whether it is more sensible to improve your home or move entirely. In either case, there are many hidden costs which can be hard to fully identify and anticipate, even with the best-laid plans.
That’s why it can really help to discuss your financial plan with a professional financial adviser with experience in the property market, to help ensure you are armed with the best possible information before making some very important, potentially life-changing decisions.
If you would like to speak to a member of our team here at Cedar House, then we’d be delighted to arrange a free, no-commitment consultation with you so you can bring more clarity to your thoughts on this important topic.
Please contact us on email@example.com or 020 8366 4400.