Home improvements - why do it yourself?

Friday 15th August 2008

by Bob Bardsley
Know Your Money Editor

As the credit crunch continues to make headlines, Britons may be tempted to look for ways to save money. With the dual effects of tightened mortgage lending and falling house prices presenting concerns over the risk of entering negative equity, could staying put be an option? Indeed, could renovating provide consumers with the chance to add some equity to their home and cancel out the negative effects of the credit crunch?

Opinion on the matter seems to be divided - estate agents are telling Lloyds TSB that a growing number of homeowners are indeed opting to improve rather than selling up. Kingfisher, the retail group that owns B&Q and Screwfix, is reporting tough trading conditions in the UK - which could suggest that sales of home improvement products are yet to rise - and Abbey is warning that doing up your house may not actually add any value anyway.

What's it worth?

While some people might want to decorate just to make their living conditions a bit nicer, the focus in the media has been on the monetary benefits of doing so in recent months. In July, Abbey - part of the Santander group - carried out some research to find out just how much it might add on to the value of a home if it were improved in one of a number of ways. What the financial services provider discovered might shock some people - although there are lessons to be learned from the research.

Abbey reported that major home improvements such as adding extensions or installing new kitchens actually lose homeowners money overall - although they do add value to the property. An extension boosts the house price by more than £13,500, while converting a basement or loft is almost as lucrative at £13,038. A new kitchen is worth slightly less - just under £5,000. But once the cost of each project is factored into the equation, Abbey claims they all come out in the red. Extensions cost more than £33,000 on average, equating to a £20,000 loss, kitchens leave the homeowner down by more than £13,000 and the relatively lucrative conversion of a loft or basement still loses nearly £10,000.

In the research conducted by Abbey, only decorating, rather than renovating, proved to be a means of adding value, as actions such as painting walls and other cosmetic touches actually came out in the black. From a typical spend of £1,330, the value added came in at £3,557 - a net profit of £2,227.

Is anyone doing it?

Again, depending on who you ask, the picture varies quite considerably in terms of how many homeowners are making improvements to their property. Lloyds TSB recently published the findings of its research which detected a trend for homeowners to upgrade, rather than selling up. In its survey of estate agents, the financial services provider found that 55 per cent have had properties taken off their books specifically because the owner has decided to improve it. Lloyds TSB itself claims a similar increase in DIYers, with personal loan applications up by nearly a fifth for home improvement purposes.

However, the aforementioned Kingfisher group has yet to see that loan money convert into substantial profit gains, as the company's recent financial statement revealed. Group chief executive Ian Cheshire said in July that the UK "remains extremely tough" as a market - although total sales did increase by 3.7 per cent in its B&Q stores year-on-year. The group noted that this was boosted particularly by sales of decorative ranges on which it earns relatively high margins.

Should we do it ourselves?

The surveys seem to indicate that home improvements do not pay - but it's worth remembering that Abbey only assessed their value in terms of the increase in house prices that followed any extensions, renovations or decorations made. Utilities regulator Ofgem advises that some improvements can help on areas of expenditure such as energy bills - which are themselves rising rapidly at present. British Gas parent group Centrica warned in its recent trading update that gas could cost as much as 35 per cent more than its current rate before the market levels off.

Ofgem suggests that cavity wall insulation could be a worthwhile investment for homeowners looking to cut their costs on utilities. The government body claims that reducing the heat lost through uninsulated walls could be worth anywhere from £50 to £100 per year. While this may not sound like a lot compared with the thousands added to a house price by an extension or refurbishment, once the costs of the improvement itself are factored in such small-scale projects could soon emerge to be more profitable overall. ADNFCR-8000200-ID-18734826-ADNFCR ©