A housing dilemma -- should I trade up or renovate?
MANY home-owners who need more space are faced with a dilemma: Do I sell and buy or do I renovate and extend?
Cuts in stamp duty have reduced the cost of moving, but reduced labour costs have cut the cost of improving.
Here are two case studies that provide guidelines to choosing between these options and these are based on mortgage rates which are broadly in line with what is available in the market today.
Take a family who are thinking of renovating their home, which has a current value of €350,000 with a 30-year mortgage of approximately €200,000. Based on mortgage rates of 4.75pc, the repayments would amount to approximately €1,044 per month for a family which decides to borrow a further €100,000 to renovate and upgrade their home, extend it, etc. The new €300,000 mortgage over 30 years will now cost €1,566 per month.
The upside to this approach is that they retain their existing home and suitable location, no stress or costs arising from relocation, and no stamp duty. They are also enhancing the value of the property, should they sell at a future date.
However, they should not expect that if they invest €100,000 they would automatically recoup the €100,000 should they sell it after the property has been upgraded.
In some cases, they might be lucky to get less than half what they have spent. Indeed, some of those who invested in renovations at the peak of the market have seen the value of their extra investment wiped out.
Furthermore, they have had to bear with disruption during renovation and an increase in the monthly mortgage cost.
But what if this family traded up? In this approach, the family sell for €350,000 and pay off their existing mortgage of €200,000, leaving them with a gross of €150,000 in cash.
The family buys a property suitable to their needs for €450,000 and pay stamp duty of €4,500. Other costs, including fees, etc, could amount to €10,000. Allowing for these costs, the family will have a mortgage of €315,000 costing €1,644 per month.
The upside to trading up is the avoidance of renovation stress and, in some cases, the cost of alternative accommodation.
The downside is that there are costs, and in some cases there may be penalties for paying off the mortgage before its term ends.
But as you can see, the marginal cost in the mortgage payments might well be outweighed by the costs associated with renovation, alternative rented accommodation. Then there are also of course the hidden costs of stress and strain, especially with builders who don't finish the job properly.
So currently, with the way prices and costs are in relation to property, you have options that were not open to you before; options to make a property decision that is affordable and in each case shown the costs are almost identical.
The bottom line is it's your personal choice. But it has been a long time since conditions were so good for making a move.
You should of course always take independent legal and financial advice when making such a decision.