Renovate or Replace?

If your existing home needs extending, then draw the shape and scale of the extension you need.

Most homes also need some element of remodelling internally (perhaps to open up between a small kitchen and dining room, or to eliminate small corridors).

Then, of course, you might want to improve or change the external elements, such as the cladding (replacing old render, for instance), as well as window and door positions and styles. Work with a designer, if needed, to come up with a conceptual plan with dimensions.

Next, consider what elements of the house are good enough to be worth improving. If you’re leaving it relatively untouched, is the roof structurally sound? Will windows need replacing anyway, even if you are leaving them in the same position? What about the heating and plumbing and electrical circuits? How old are they? Will they need ripping out and starting again, or were they recently replaced?

The scale of the works (both repair and remodel) you’ve outlined above will give you the starting point to help you make a decision. How many of the external and internal walls have been left untouched?

An ambitious remodelling and extension project will leave precious little of the original house untouched. What is the cost of rebuilding these individual elements?

It sounds obvious, but the bigger the scale of the proposed works, the more likely it is that it will make sense to replace rather than repair. Because self-build projects are zero-rated for VAT, while work to an existing house is charged the full rate of 20%, a £200,000 self-build house costs you the same as a £167,000 renovation project.

It’s notoriously difficult to provide cost estimates for work to existing homes, including extensions – and usually the comparative cost per square metre (which is how the industry tends to compare prices) is higher.

That’s for two main reasons – firstly, that the work involved in making the existing house ‘good’ is difficult to predict until you begin to uncover things and almost always involves some remedial work to the existing structure; and secondly, because over a whole house, the ‘expensive’ elements of a typical m² cost (foundations, roof, the expensive rooms such as kitchens and bathrooms) tend to be evened out over a larger project.

An extension has all of these things, and usually involves the most expensive rooms – which is why typical extension costs can be up in the £2,000m² range (usually plus VAT, meaning £2,400m²).

Meanwhile, the average self-build project costs £1,303/m^2. This means that you can effectively build a 140m² new house for the same price as a 75m² extension (£180,000).

As any engineer will tell you, in any project involving something that exists already, there is an element of ‘negative construction’.

In renovation projects, this means all the work that you need to carry out to get to a situation where the house you want is beginning to take shape: zero on the scale.

All the old walls have been taken out, problems in the roof structure have been addressed, and the old pipes and cables have been stripped out, as has the old uninsulated floor.

This is work that simply gets you to where you can then start building properly, and all of those days of electricians and labourers cost money (with 20% VAT on top), and they are all unpredictable in their duration and therefore cost.

With work on existing houses, builders really only know what it will cost once they are back in control of the project.

How much of that work does your renovation project involve? What is the cost of getting to zero? With a self-build project, your project has already jumped to ‘zero’.

Many renovators refuse to consider replacement because of the perceived cost of demolition. The truth is that it varies – it depends on the size of the house being demolished, how easy it is to take apart and, most importantly, what can be done with the existing materials.

A good ballpark range for the demolition of a standard house is £5000-£15,000, which in the grand scale of a project, is minimal – and certainly more than clawed back in the VAT savings enjoyed on a new build.

Here’s a fairly simple situation. You’ve bought a large 300m² house which you paid £400,000 for that, according to your builder, needs around £200,000 worth of work to get it to where you want to be. This would include adding on a modest 50m² extension.

If you decided to knock down the existing house and rebuild to the same design and specification, you’ll end up needing to spend approximately £450,000 (£1,286 x 350m²) to self build.

The point is that the scale and condition of the existing house is critical to deciding how to proceed. If the original house was 100m² and you wanted a 350m² house, you’d be much better self-building. If ‘B’ is the value of what it takes to get you from A to C, then the key is in working out the scale of B in relation to A.

One way around this for self-builders is to ignore the natural compulsion to want to build bigger than the existing. In particular this might suit empty nesters, looking to create a more efficient, manageable house for their retirement. In the example above, building a new super efficient house for around £200,000 would be a viable option.

In the theoretical situation above, the glaring omission is the one that any developer would have spotted. What is the potential value of the finished house?

If you recently paid £400,000 for the house, regardless of its requirement to be improved, knocking it down eliminates any value in the house itself. Is the house still worth £400,000 as a building plot?

If you decided to spend £450,000 building the new house in its place, could it conceivably be worth £850,000+? It’s highly unlikely. You may consider the end value of the home an irrelevance, but you should always have an eye to the basic economics of the project – you never know what life may throw at you.

In many ways the local economics of the housing market will have the biggest influence on your decision, because the potential end value of the project is higher while, generally speaking, build costs are relatively consistent across the UK.

So in high value areas, it is usually easily possible to recover the additional costs of building a new house because the land values are so high; in low value areas, the difference in value between a poor quality house and a ‘good’ house are rarely enough to justify a complete rebuild.

Approach it with your head, rather than your heart, and consult estate agents to get their view.

Some people decide that they simply can’t face the idea of knocking their own home down – particularly those who have lived in it for many years and invested a lot of money and emotional effort in it. Additionally, the practical costs of moving out – not necessarily avoided by carrying out a renovation project – can top £10,000 for 12 months’ rent.