Renovating property is a relatively easy way to increase a home’s value, whether its being sold, rented out, or simply improved for a later date. Developers and investors often renovate derelict or unloved properties to flip for a profit. In recent years, Brits couldn’t get enough of these projects.
Even a global pandemic couldn’t slow them down. In 2021, the number of applications made for home improvement work rose by a quarter when compared to 2019. Specifically, applications for loft conversions, extensions, garden buildings, landscaping, and home offices skyrocketed.
Property renovation costs can be substantial, however. UK households spent £55billion on improvements last year, a rise of 12% when compared to 2020. Additionally, growing numbers of people are remortgaging to finance their plans.
As the cost-of-living crisis continues, these bills are likely to jump further. But in this blog, we’ll break down how much you’re likely to spend along with how costs can be cut.
Source: Barbour ABI, Bloomberg
How much are renovations costing?
Unfortunately, building costs, from labour to materials, are rising exponentially. Manufacturers’ input costs are rising at the fastest rate seen since at least the late 1980s. According to Rated People, the average loft conversion this year will be 25% more expensive than the levels seen in 2020. The cost of installing new bathrooms will also rise by 40%.
Some 83% of builders are putting up prices just to stay solvent as raw material shortages arise. Reportedly, homeowners are seeing workmen add a 20% contingency onto quotes to hedge against inflation. Currently, average property renovation costs for a 3-bedroom house top £76,900 according to Check a Trade. People are also advised to add 10-15% on top of this for unexpected issues.
Given how costly renovations can be, investors will want to do everything they can to ensure their efforts pay off. Investors who spend thousands on a renovation, only to overlook something which prevents a sale, will be disheartened to say the least. Fortunately, there are a few key areas that can be kept an eye on to minimise the risk.
Source: The Telegraph, Check a Trade
What can you do to avoid being ripped off?
Some renovators may fall into the trap of only focusing on the aesthetic changes being made. But, the hardware beneath the surface needs to be remembered. When making extensions, people may put drainage points outside a house to the back of their mind, but this is very dangerous. If people try to build over manhole covers (for example, in a bid to move bathrooms around) they could see their bills jump dramatically.
There are also several steps people can take to ensure their property renovation costs are not hijacked by “cowboy builders”. From the outset, investors should remember if it seems too good to be true – it probably is.
Plenty of research should be done before any commitments are made to a project. A builders’ credentials, previous projects and recommendation should all be checked. Also, investors should not be afraid to ask for a Contractor’s Insurance Policy Certificate or trade association details.
Reputable builders should be registered with the likes of TrustMark, the National Federation of Builders, or the Federation of Master Builders. There are also various associations for electricians, plumbers, engineers, and other tradespeople.
Source: Express, The Sun, Homeowners Alliance
How can you make the most of your investment?
Some renovation costs will be unavoidable but through careful manoeuvring, it’s possible to avoid unnecessary fees. For instance, materials can be bought directly from wholesalers, which may cut contractor costs. Paying for as much as possible with cash will also lower how much interest can be added on.
Prioritising specific areas in a project could also prove worthwhile when the time comes to make a return. Buyers of refurbished homes are likely to focus on their structural soundness before examining smaller tweaks.
Where budgets are stretched, renovators can focus most of their effort on just the kitchens and bathrooms. Those typically add the most value to a home. According to Jake Barlow, the founder of Property Store, a “quick lick of paint” may be enough for the remainder of the property.
Investors can also dramatically reduce their spending by focusing on particularly cost-effective regions. CIA Landlord Insurance examined the costs and availability of ten essential tradespeople across the UK. As a result, it narrowed down the most affordable locations for flipping property.
Leicester emerged as the cheapest city for property renovation costs, with the combined day rate of the essential tradespeople needed totalling £1,723. This could create opportunity for investors eyeing up the midland’s town; where average house prices have risen over 250% in the past 20 years. Outside of Leicester, properties in Coventry, Wolverhampton, Birmingham, and Cardiff can all be renovated relatively cheaply.
Source: Metro, House Beautiful, Express, Leicester Mercury, CIA Landlord Insurance
When is the best time to renovate?
Regardless of how – or where – people want to renovate, they’ll want to act sooner rather than later. Several developments are on the horizon which could hinder plans and make them even more expensive. Currently, a Levelling-up and Regeneration Bill is making its way through Parliament. This bill could give locals voting rights on whether certain extensions or conversions can go ahead on their streets.
Additionally, Arcadis recently revised their construction forecasts upwards. Costs are expected to rise by a further 8-10% over the remainder of 2022. Beyond this, they could increase by another 5% in 2023/24.
Source: UK Parliament
Disclaimer
MFS are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice.
