When the reno bug bites

Moving is expensive but be careful not to overcapitalise if you stay and upgrade

Has your dream home become a nightmare as your family has grown and your space seems to have shrunk? Have you discovered that one bathroom and one living area are no longer adequate? So how do you decide whether you renovate or relocate?

If you still love where you live it’s certainly worth exploring the upgrade option, especially when moving costs – including the stamp duty slug, which can be as high as $43,000 on an $800,000 property – can easily equate to 10% of the price of your new home. For example, if that’s $800,000, the $80,000 you save by not moving will be a boost to your renovation budget.

By staying put you also avoid the stress of a move and the adjustment required to live in a new location. And you’re more likely to end up with a home that exactly suits your needs and desires.

Not surprisingly, very high moving costs have seen more people stay put. House turnover, already the lowest for nearly 25 years, is still falling, according to the Reserve Bank. And renovation lending has reached a seven-year high, according to ABS figures.

One home loan lender, ME, has seen loan applications grow by 48% and 25% for cosmetic (an average of $40,000) and structural renovations ($400,000 average) respectively over the six months to June 2017.

If you want to stay put it’s crucial you have the space to upgrade your home to suit your family’s needs. Local councils have rules about how much building they will allow on individual plots and this can be confusing.

Often the best strategy is to employ an expert, such as an architect or other design professional, to work out what is possible and how to make your space, both old and new, work best for you. This will cost you but as someone who’s undertaken renos both with and without an expert, I’ve always found it to be money well spent.

Once you have decided the extent of your upgrade, and had it approved, you need to get a handle on what it will cost you.

To avoid spending more on the renovation than the value it adds to your home, research the market in your area to make sure your improvements will fit in, says Patrick Nolan, head of home lending at ME. For example, it’s not a good plan to end up with a four-bedroom, two-bathroom home in an area that is more popular with young singles than families.

“Put your hard-earned cash to work where it will deliver the greatest benefit,” says Nolan. “High-quality kitchen and bathroom renovations almost always add value to a property because they have broad appeal. The same can’t be said of outdoor spas or swimming pools, which can be high maintenance.”

Many people pay for their renovations by drawing on the equity they have built up in their property using a home equity loan, says Nolan. Equity is the difference between the value of your property and the amount you owe on it. For example, if your home would sell for $800,000 and your mortgage balance is $500,000, your equity is $300,000.

If you don’t have a lot of equity – and remember you have to maintain 20% to avoid expensive mortgage insurance – you could use a personal loan to pay for a cosmetic makeover.

The advantages of buying a new home include getting a place that suits you from day one and avoiding the stress of living in the dusty, noisy and uncomfortable environment that usually accompanies a renovation. And you have the certainty of knowing what your financial commitment will be; remember, renovation costs often blow out.