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Money Times - 10/06/09

Posted by Jill Kerby on June 10 2009 @ 23:12

HOME IMPROVEMENT ENTHUSIASTS NEED TO KEEP A CLOSE EYE ON THEIR BUDGET 

 

It’s turning into ‘DIY Summer’ here on my street. One neighbour has booked the roofers to replace the back end of his roof and the gully between his house and his neighbours’ that has been causing a leak in an upstairs hallway. Another is tackling the half-finished attic itself that will be the new home of the young French student who will be lodging with the family in October. 

Bathrooms and garden patios, wall pointing and paint jobs are all being tackled this summer but few are shelling out the twenty, thirty or forty thousand euro that constitutes a new kitchen here. But there is an acknowledgment that labour and materials haven’t been such good value since the 2001 or 2002 when the property bubble sucked in not just mounds of cheap credit, and every tradesman was busy working on building sites from one end of the country to the other. 

Some jobs around the house just have to be done and shouldn’t be put off – plumbing, electrical and structural repairs, such as leaking roofs and foundation cracks.  Others, like installing proper insulation, is probably a bigger job that should be seriously considered if your house, like mine, is part of the country’s older housing stock and positively leak heat out the draughty windows, fireplaces and badly insulated roof and cavity walls.  (That’s the detailed topic of next week’s column.) 

But before you dash off to the local builder’s provider or a DIY superstore to get cracking on that ‘must-do’ project, what do estate agents consider the best home renovation and decoration projects that will not just enhance the quality of living for its owners, but that will also enhance it’s value, even in this recession?

The most recent research I could find was from the UK lender, HSBC of UK estate agents.  (Judging from the number of UK trade exhibitors who show up for the Irish ‘better home’ exhibitions each year we seem to share the same home improvement interests as our British neighbours). 

The HSBC survey showed that a full loft conversion and a room extension add the most extra value to a home – about €15,000 worth, followed by a conservatory (€7,870), new windows, a new kitchen (€5,000) and a new bathroom (€3,000).  After that, a house redecoration (worth just an extra €2,229), a resurfaced driveway (€1,434) and finally, a minor loft conversion (€1,422) are most likely to increase the value of the property. 

What is surprising about the survey is how little benefit this expensive work actually is to the overall value of the property in the UK or here, even when adjusted to our higher material and labour costs and our (still) proportionately higher house prices. 

Given that so many Irish homeowners have spent many times more than the above amounts outfitting their kitchens and bathrooms, and house prices are unlikely to return to pre 2007 prices for some time, a survey like this – even adjusted for Irish DIY price inflation – is a warning to anyone who is actually fixing up their home this summer with an idea to selling it on: don’t overspend. 

With buyers seeking bargains these days, granite worktops could work entirely against you if they intend for the money they save on the purchase price to be used to redecorate according to their own tastes.

Meanwhile, the ideal way to pay for home improvements is with income or savings.  Resist the temptation to put these costs on your credit card. Credit card rates are now creeping upwards and cash withdrawals can be charged at interest rates that are a whopping 10% or more than the purchase rate, you are far better off taking out a small bank or credit union loan (if you have a good credit record at your bank and a secure job. Expect to pay in the region of 10% for your loan, despite lower, headline advertised rates.

Depending on how much equity you have in your home you might be able to get a mortgage extension to pay for a more expensive renovation.  (I’ll be covering the funding details of a home insulation project next week.)  Variable interest rates of c3% are on offer to customers of AIB and Bank of Ireland, for example, but other borrowers, like those with Permanent TSB loans, for example, will pay up to 2% or more for a loan extension and may not be able to switch to a lower cost provider very easily. 

What you most certainly want to avoid if you are seeking funding for a major home renovation, is to let your bank convince you to transfer out of an existing ECB tracker rate mortgage with a premium rate of say, 0.5%-1% over the 1% ECB rate. 

Interest rates have only one way to go – up – over the medium term, and you could end up finding that your extension costs much more than you anticipated if the ECB rate rises back up to 4% or 5% again.

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