A neighbour sold a property like ours – without an extension – for 10% more than we paid

Q We have been living in our five-bedroom home for the last four years. I don’t imagine we’ll move for at least another six years or so, until both our kids have finished school.

We’ve recently looked into the cost of building an extension to the ground floor, creating a separate reception area off the kitchen plus another living space.

We have had a quote of £37,200 (including VAT) for building the extension which is about the same as 7% of the value of the house when we bought it four years ago. So we would be looking to borrow an additional £40,000 to cover the costs of the building work with a bit to spare.

The house a few doors up (a new-build the same size and build as ours with no extension or renovations) sold for just under £593,000 last month which is about 10% more than we paid for our home. I know nothing is certain, but the extension therefore feels to be a good investment, not only adding value for our family – the key motivation – but also against the financial value of the property.

To afford the extension we would need to remortgage which would add about £190 to the £1,200 that we currently pay each month for our mortgage which has 24 years left on it. We could afford this additional monthly amount, but are we crazy to increase an already sizeable mortgage to do this? And, is remortgaging the best way to raise the capital? 

A I’m a bit confused. A house a few doors up from your house sold for about £54,000 more than what you paid for yours even though the owners had done nothing to it. For me, it does not follow that “the extension therefore feels to be a good investment”. Building an extension will prove to be a good investment only if the value of your home rises by more than what it ends up costing you to have the build done.

If your home is going to go up in value anyway – as your neighbour’s property did – why bother with the mess and anguish of having building work done? I would also question why you would want to have building work done without a very clear idea of what you will use the extra space for. Adding more rooms won’t necessarily add value and, if done unsympathetically – after the extension is built, the kitchen no longer has a view of the garden, for example, or the natural flow through the house is disturbed in some way or you end up with a tiny garden – could actually have a detrimental effect on value. So before you go any further, I suggest that you get an estate agent in to help you decide what changes – if any – would be beneficial if, indeed, your family really does need the extra space.

If you do decide to go ahead, as well as the cost of the build, you’ll also need to factor in the costs of possibly employing an architect (plus VAT), planning permission, building regulation checks as well as the cost of borrowing. In terms of the interest rate charged, adding to your current mortgage is likely to be the cheapest option. But because you’ll be paying extra interest on the loan for the next 24 years, it could also turn out to be the most costly way of financing the build.