Renovate or Replace?

25 April 2018 Mark Stevenson

At what point does it become more sensible to knock down and rebuild a house rather than renovate it?

Before and after photo of a bungalow replaced with a Potton barn
There are many ‘accidental’ self-builders who fall in love with everything about a property except for the building itself. These are people who purchase a home not because of the state of the house itself, but because they like the location, the plot, the history and so on.

The scale of their intended works is such that the easiest and most cost-effective way to get the house just so is to tear the whole thing down and start again. Ask most designers and builders and they will tell you — per metre squared, self-building is so much easier and cheaper than renovating in cases of dated, disused or inappropriate properties.

Of course, it doesn’t always make sense to demolish your home. The correct decision will be illuminated by factoring in various elements of the project. How much it costs to knock down a house and rebuild is a key factor, but start by drawing up a logical, step-by-step process — with a bit of emotional consideration thrown in for good measure.

Here are ten steps to work through that help you decide whether to renovate or replace your house.

1. Design the changes to the existing home as you would want to carry them out

Consider what you would do to the current structure if you could. 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 the space 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. Examples of this include cladding or re-cladding (replacing old render, for instance), as well as window and door position adjustments and styles. If needed, work with a house designer to come up with a conceptual plan with dimensions.

2. Assess the existing structure and systems

Next, consider which elements of the house are in good enough shape or need improving. If you’re leaving it relatively untouched, it’s worth asking some additional questions regardless. Is the roof structurally sound? Do the windows need replacing anyway, even if you are leaving them in the same position? What about the heating, plumbing and electrical circuits? How old are they? Will they need ripping out and starting again, or were they recently replaced? These questions are less glamorous — having less to do with style and more to do with practicality — but just as important.

3. Assess the value of what’s left

Once you have completed the above exercises, begin to appreciate the scale of the works needed to bring the house to the standard you desire. These repair and remodelling tasks — the amount of them and the difficulty of each — will help guide you towards a decision on whether it is best to remodel the property or demolish and rebuild.

Ask yourself, how many of the external and internal walls have been left untouched? An ambitious remodelling and extension project will leave little of the original house untouched. What is the cost of rebuilding these individual elements instead?

4. Consider VAT, and the scale of the proposed remodel/extension

It sounds obvious, but the larger the scale of the proposed works, the more likely it will make sense to replace rather than repair. A key reason for this is tax. Self-build projects are zero-rated for VAT, while work to an existing house is charged the full rate of 20%.

With this in mind, all things being equal, the rebuild cost for a £200,000 home will cost you the same as a £167,000 home renovation project. You could save a lot of money by rebuilding rather than renovating — the savings leave money for better quality materials or higher quality finishes and furnishings later on in the process.

5. Renovation and extension work is more expensive

It’s notoriously difficult to provide cost estimates for work to existing homes, including extensions. Usually, as previously stated, the comparative cost per square metre is higher. The measurement of cost per square metre is an industry standard that you should get used to seeing in your calculations — especially in the initial planning period.

There are two reasons for the difficulty in providing accurate cost estimates for work on existing properties. First, the work involved in making the existing house “better” is complicated and tough to predict. Until you begin the process and potentially start to uncover the need for remedial works to the existing structure, you never know the true cost of the project.

Second, over a whole house, the most expensive elements of a typical metres squared cost estimate — the foundations, roof, more expensive rooms like the kitchen and bathroom — tend to even out over a larger project.

An extension has all of these things and often involves the most expensive rooms. This is why typical extension costs can be around £2,000 per metre squared and more. Remember, you will likely pay VAT on top of this so the cost is actually £2,400 per metre squared.

At this point, you will be asking yourself whether the renovation is worth it. Is a self-build worth it? In most cases where a property is in need of large-scale remedial and remodelling work, the answer is yes.

To compare figures, the average self-build project costs £1,303 per metre squared. To put this into perspective, you should be able to build a 140m² new house for the same price as a 75m² extension (£180,000).

6. How important is fixed pricing to you?

As any engineer will tell you, in a project that involves something that already exists, there is an element of “negative construction”. In renovation projects, this simply means all the work you need to carry out to get the house at the beginning stage to start renovations.

For example, all the old walls must be taken out, problems in the roof structure have to be addressed, and the old pipes and cables need to be stripped out, along with the old uninsulated floor.

This is work that merely gets you to where you can then start building properly. All of those days cost you money (with 20% VAT on top, remember), and they are all unpredictable in their duration and therefore cost. With work on existing houses, builders really only know what the full cost will be once they are back in control of the project. These costs all eat away at your overall budget before the satisfying work begins.

How much of this kind of work does your renovation project need? What is the cost of getting to this zero-point? With a self-build project, in many respects, you begin at zero.

Did you know...

Replacement Dwelling, Old bungalow replaced with new Potton self build home
...that replacing an existing house is increasingly becoming one of the most common ways to build a new home.

Lots of our customers find a plot with an existing house on and replace it for something new!

Find out more about replacement dwellings.

7. Demolition costs

Many renovators refuse to consider replacement as a viable option because of the perceived cost of demolition. The truth is this cost does vary a fair degree. How much it costs to knock down a house and rebuild 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 that make up the existing property.

A good ballpark range for the demolition of a standard house is £5,000 to £15,000. In the grand scale of a project of this size, this is usually minimal. In most cases, this is certainly more than clawed back in the VAT savings enjoyed on a new build alone.

Working with Potton

There are cases, however, where people go through all of the calculations above and favour replacing the whole house yet still end up deciding to muddle through a renovation project.

Here’s why:

8. The size and condition of the original home

Here’s a fairly straightforward situation. You bought a large 300m² home, which you paid £400,000 for. According to your builder, it needs around £200,000 worth of work to get it to where you want to be. This includes adding a modest 50m² extension.

If you decide to knock down the existing house and rebuild to the same design and specification, you’ll need to spend approximately £450,000 to self-build (£1,303 x 350m²).

The point to consider carefully here though is the scale and condition of the existing house. If the original house is 100m² and you want a 350m² house, you’d be much better off self-building.

Another way of thinking about it is 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 and potentially far superior option.

9. Consider the ceiling value

In the theoretical situation above, the glaring omission is 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 or more? It’s certainly not likely. 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. The potential end value of the project may be higher or lower depending on location whereas — generally speaking the build costs are relatively consistent across the UK.

So, in high-value areas, it is usually possible to recover the additional costs of building a new house because the land values are so high. In low-value areas though, 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 do not be averse to consulting local estate agents to get their view.

10. The costs of a self-build project

Some people decide that they simply can’t face the idea of knocking their 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 while the home is being demolished and then rebuilt can easily top £10,000 for 12 months’ rent, for example. This is a fair consideration, but always take into account that moving out of the home is not necessarily avoided by carrying out a renovation project — you will often need to move out for at least some of the process, especially if the works are substantial.

The most cost-effective self-build projects are carried out after taking into account all of the factors outlined above. You should feel confident in all aspects of the process before committing, but you should also not feel stifled by an attachment to a building that doesn’t serve you as well as a new structure would.

Get in touch with us today to discuss your self-build requirements, ask us questions about your situation, and get our experts to walk you through the possibilities.

Potton self-built barn in Hampshire

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