Summer can be a popular time of year for property sales. Buying a property is likely to be the biggest investment you will ever make. But in the current financial climate, is it better to sell or renovate your home? There is no magic answer to this question, as it will depend on your current financial situation. Let’s look at what you need to consider before you choose to stay or go.

It can be all too easy to get excited by the current price of your property and feel the urge to sell. There has been some debate recently over whether there will be a property crash. With varying forecasts and hypotheses, no one really knows what will happen. One problem is the impact of interest rates on standard variable rate (SVR) mortgages.

Mortgage lender rates are linked to the Bank of England base rate, which is influenced by inflation. At the current time of writing, the UK has the highest rate of inflation in Europe. Interest rates are still on the rise, but how high could they actually go?
The Chancellor has recently announced support for those struggling with their mortgage repayments. Measures include the ability to switch to an interest-only mortgage and lock in a deal up to six months ahead at the end of a fixed term without affordability checks. Your mortgage payments might determine whether you choose to stay put or put your house on the market.

Should you sell or should you stay?

Stagnating wage growth, the lack of a labour force, and low productivity rates have provided a poor outlook from an inflation perspective. Interest rates are likely to increase over the coming months. Many people are worried about rapidly increasing mortgage payments due to rising interest rates. The Bank of England has some tough decisions ahead. We need to remember these times will pass – and this is the value of a long-term financial strategy.

Below are a few scenarios to consider:

• If you own your home and you have a relatively small mortgage left, you could sell while prices are still high and move into a rented property. You could sit and wait for property prices to fall, and you might be able to find a good property deal. It’s worth noting that rental prices are also very high, so your monthly rental payments could be much higher than expected. There’s also the risk the owner might sell the property.
• If you sell your home and buy another property now, you could be paying an overinflated price for your new home. Depending on the type and size of mortgage you need, you could then find yourself in a position where you cannot afford your monthly repayments. Rising interest rates could hike up your mortgage payments.
• If you decide to renovate your home, you will need to factor in the cost of building work. Due to a shortage in materials and a busy construction sector, the price of building work has dramatically increased. Also if you want to sell your property in the near future, any home improvements need to add real long-term value to your home.

The value of home improvements

Improving your home in the short term could enhance your existing lifestyle and increase the value of your home in the long term. You could expand your property to accommodate a growing family or to work from home. You might be able to alter a room to create more space by removing an internal wall, for example, an open-plan living area.

Although it’s not a deal-breaker for many homebuyers at present, in the future, EPC ratings could also start to determine house prices. So, you could take advantage of any energy-efficient upgrades to make your home more sustainable. Insulation, a modern heating system and, solar panels are all things to consider. These green features have the added benefit of lower energy costs for you while you are still living there.

Below is a list of estimated values for home improvements, supplied by Virgin Money and Compare the Market:

• Garage conversion: Average cost is £10,000-£20,000. Added value 10-15%
• Loft conversion: Average cost is £20,000-£30,000. Added value 15-20%
• Off-street parking: Average cost is £1,000-£2,000. Added value 5-10%
• Basic kitchen makeover: Average cost is £6,000. Added value 3-10%
• Additional bathroom: Average cost is £6,500. Added value 4-5%
• Open-plan living space: Average cost is £1,500-£3,500. Added value 3-5%

The impact on your financial future

Asides from the “sell or renovate” question, selling your home could affect other areas of your life too. Below are some questions you will need to answer before you make any big decisions about selling or renovating your property:

• How will a new property affect your estate value and inheritance tax (IHT)?
• Would taking on a larger mortgage affect your long-term financial plans?
• Will increased mortgage payments reduce your retirement savings?
• Will you have enough savings for future care needs?

Many people consider equity release as a way of getting money out of the value of their property. This is a type of mortgage loan that gets paid off after your death or if you go into care. But there are risks attached to this type of mortgage. Always speak to our financial planners before you change your current mortgage deal or commit to a large investment.

Our team will help you create a financial plan, so you can gain more clarity about your options. Financial planning helps you to prepare for different eventualities and big life events. This will help you make a more informed decision about selling or renovating your home.

Would you benefit from a having a financial plan? Get in touch with our financial planning team.

Sources:

PensionCraft podcast: How High Will Interest Rates Go?

https://www.gov.uk/government/news/chancellor-agrees-new-support-measures-for-mortgage-holders

https://commonslibrary.parliament.uk/research-briefings/sn02802/

https://www.comparethemarket.com/home-insurance/content/home-improvements-vs-moving-house/