Renovate or replace? Knowing the tipping point of when to knock down an existing home and rebuild

Over 53 per cent of UK adults would like to self-build or commission an individually designed custom build home at some stage in their lives but not enough plots of land are made available on the market. To make the most out of their opportunities, aproximately half of British self-builders decide to progress with their projects by demolishing an existing home. However, there are still many people who hesitate to go down the wrecking ball route.

Mark Stevenson, managing director of Potton & Kingspan Timber Solutions Ltd and self-build & renovation expert for The London Homebuilding & Renovating Show, explains the surprising benefits of building a new home by replacing an old one and walks you through the whole process.

Mark says:

“Aside from having more plot options, the design freedom to build a home which suits your needs while benefiting from an established residential status, essential services already in place and established access arrangements, a rebuild house can also offer more space, increased value and fewer taxes if done correctly.”

Assessing the project’s viability

In order to tell if a plot has potential for redevelopment, you need to make sure it’s worthy of your time and money. In other words, you have to assess its viability. Thinking like a developer helps as it implies doing your research to understand the financial implications for the potential project. My advice is to work backwords from what the plot of land could support, approximating its end value and than removing the total cost of developing the build and purchasing the dwelling in the first place. This is how you can work out the profit or equity. The formula is this: profit (equity) = end value minus redevelopment costs minus purchase costs. A reliable answer will take into account what type of house the plot will support, the build costs and its final value.

Obtaining planning permission

Striking a balance between good architectural design and an approved planning permission will help you create a viable project. When replacing an old home you have the benefit of an established principal of residential development so you don’t need to worry too much about details such as design, scale, sitting and access. In terms of increasing its size, most Local Planning Authorities (LPAs) are likely to allow the new home to be 30 per cent larger than the previous one, while others take a more pragmatic approach and look at the situation from a broader local persective.

Design considerations

When developing design ideas, assess the features of the surrounding buildings and think about how your proposal will blend in. Planning policy favours innovative design but is likely to reject designs that are overbearing, taller than nearby properties and result in loss of amenities to neighbours. A planning consultant can shed light on all your queries. Also, as the architectural and design features are subject to one’s own liking, try not to limit its demand by making it too individual. Self-builders tend to be innovative and forward thinking, working with the latest technologies and energy efficient building systems, however always check if these will add value to the final project.

Redevelopment costs

Demolishing the property needs to take place only after securing permission for its replacement. This is a very straighforward process and it costs around £8,000-£12,000 for a single property. The only complications you need to bear in mind are the disposal of asbestos and other hazardous materials, disconnection of services which can trigger lengthy processes and demolition, which requires access from third party land. Don’t rely on the goodwill of the neighbours; it’s best to secure a licence for this.

Tax exemption

While some builders wish to retain parts of the existing structure to incorporate them into the new build, this will increase your costs by aproximately 20 per cent. To qualify for a zero rated VAT you have to ensure the entire building, including its foundations, are replaced.

Project management

The overall budget is also impacted by how many people work on the project. If you don’t have the time or confidence to be hands-on with your own build, it’s best to manage a team of tradespeople or employ subcontractors. Using a project manager or a turnkey builder to complete the project might increase your spend and affect the viability of the build but it will be more convenient. Online tools such as Homebuilding & Renovating’s build cost calculator or a quantity surveyor can help you work out a reliable budget.

Once your design passes the planning stage, value the proposal as if the finished house is ready for sale. Conducting property valuations will probably leave you with a series of differing personal opinions but if you increase the property’s value and control the build costs, it’s best to research the local market and verify your objective estimation with a qualified surveyor.

Factors to look out for

  • Protected status
    If a building is listed, this can’t be replaced. Also being located in designated locations such as conservation areas, national parks or areas of outstanding natural beauty have tightened planning policy control and will benefit from additional protection. To have a successful application you need to focus on enhancing the area or preserve its local character.
  • Restricted covenants
    Breaching a restricted covenant can be an expensive error so it’s advisable to take out indemnity insurance. Some contracts might limit the area of redevelopment or claim a percentage of the uplift of value generated by their redevelopment. When possible, try to renegotiate its removal ahead of purchasing the property and revealing your development plans.
  • Project finance
    Working out your finances might be trickier than erecting a new home on a greenfield plot and might become an illogical process. A mortgage is required to buy the property, which is secured against the value of the building that is to be demolished. Standard high street banks might not approve such application but a friendly building society can point you in the right direction.
  • Spotting the plot
    Run down properties are obvious targets and high demand is likely to increase their selling value above their actual worth. To increase your chances of success you need a different approach: look for houses where you can add value in less popular ways by increasing the quality and scale of the building. For starters, rule out tight sites which offer no room for expansion or architecturally desirable properties with premium prices. You need to look for space to build into and properties with little or no architectural features. Another useful tip is to explore the opportunities of building up. This is why bungalows are such popular replacement projects.

Cost-wise, expect to pay anywhere from £1,300 per m² upwards for the rebuilding process. This means low value areas aren’t likely to offer viable prospects, which increases the north/south divide when it comes to the plot of land’s suitability. Doing your due diligence and understanding the local market will eventually pay off.

For more guidance on opting for the best route for your project, visit The London Homebuilding & Renovating Show. Mark will be in attendance at the Advice Centre across all three days of the event (21-23 September, ExCeL, London). Standard tickets are £12 in advance or £18 on the door (children under 16 go free).

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