The 5 best (and 5 worst) home improvements for adding value to your property

Apparently, it’s something to do with the credit crunch.  According to Lloyds TSB there’s been a jump of 20% in the number of people borrowing money for home improvements since house prices began to fall in late 2007.

The reasons seem to be twofold.  Some home owners are looking to offset the effects of the credit crunch by adding value to their homes and increasing their saleability.  Others have decided to stay put until market conditions improve and instead of moving to climb the property ladder are expanding and improving their existing properties.

But research from Abbey shows that the home improvements that might have added thousands to the value of a property during the boom years could now end up costing you thousands … tens of thousands in fact.

What makes the current situation even more worrying is the gulf between perception and reality.  The home improvements that home owners think will add the most value are turning out to be some of the most costly.

The top 3 home improvements, according to home owners, are:

1. building an extension
2. converting a loft
3. fitting a new kitchen

The home owners surveyed believed that these improvements would add a combined £16,195 to the value of a home after costs (Halifax, July 2009).  The reality, according to the Royal Institute of Chartered Surveyors (RICS), is that the unfortunate home owner who embarked on this spree of home improvements would leave themselves with a staggering loss of £47,000 when they came to sell.

Worse still, according to Abbey, the more you spend the more you stand to lose.  This is partly because the cost of work and materials will not be reflected in the sale price.

Figures from RICS show that the cost of home improvements rose 20% between 2006 and 2008.  RICS have blamed a rise in transport and material costs plus increased labour costs as Polish builders return home.  Once you factor in a drop in house prices of around 20% (and therefore a similar drop in the value of home improvements) things start to make more sense.

Unfortunately, as the recent Halifax research shows, the perception of the home owning public is lagging significantly behind this reality.  Designer kitchens used to be a sure fire way of adding value to a property – not any more.

So, are there any home improvements that are still worth doing?  And which ones should definitely be avoided if you don’t want to seriously damage your wealth?  Here are the top 5 home improvements in terms of the value they actually add (as opposed to perceived value) based on the RICS cost/benefit analysis and the figures from Abbey:

 

	Home Improvement	cost £	benefit £	net value added £
1)	Off-road parking	650	10,000	9,350
2)	Landscaped, family-friendly garden	900	6,000	5,100
3)	Decorating (choose neutral colours)	1,350	3,600	2,250
4)	New bathroom	3,000	4,000	1,000
5)	Double glazing	7,000	7,500	500

Together, these home improvements would add a total of £18,200 to the value of a property.  Compare that to the effect the 5 worst (according to RICS) home improvements – “improvements” that together would leave a home owner £118,000 worse off when they came to sell:

	Home Improvement	cost £	benefit £	net value added £
1)	Installing a basement	50,000	4,000	- 46,000
2)	Converting garage to gym	25,000	0	- 25,000
3)	Extension into garden	35,000	10,000	- 25,000
4)	Loft conversion	28,000	10,000	- 18,000
5)	New kitchen	12,000	8,000	- 4,000

The kind of home improvements you should undertake then will depend heavily on your reasons for doing so.  If the reason is to add value to your home and increase its saleability then stick firmly to the first list.

Quality of life

When it comes to adding space (loft conversions, extensions and conservatories), however, it turns out that 78% of home owners intend to stay in their property for at least the next two years (Halifax, May 2009).  For them it’s about finding ways to increase their standard of living and quality of life.  And, over time, as the housing market recovers so will the value of their home improvements.

So, if you view your property as a home – and somewhere you intend to live for a number of years – rather than simply as an investment then maybe it doesn’t matter so much what sort of home improvement you choose after all.  Still, you may want to stay away from installing a basement!