Hidden Costs & Insurance Risks of Home Extensions & Renovations

The number of homeowners choosing to stay put and invest in their existing property instead of moving has soared in the past five years, according to a new report from specialist insurer Hiscox.

In 2013 just 3% of homeowners took the decision to improve instead of move, but fast-forward five years and this figure has increased to 15%, further rising to one in four (26%) amongst millennial homeowners (those aged 18 – 34).

The Hiscox Renovations and Extensions Report draws on insight  from homeowners, UK-wide estate agents and over 400 local council planning permission records to highlight the growing number of homeowners choosing to invest in home improvements and the profits and pitfalls they’re facing as a result.

Key findings

Driven by an impenetrable property market:  The subdued and costly property market has been a clear catalyst for this trend. When questioned, homeowners cited prohibitively high property prices (25%), stamp duty (13%), a sluggish property market (15%), potential interest rate rises (8%) and even the uncertainty caused by Brexit (8%), as reasons for investing in their current home instead of looking elsewhere.

Renovating without cover: Many homeowners are unaware that renovating without telling their insurer first can leave them with little or no cover. This is perhaps why only 17% of those who’ve previously renovated or are currently doing so notified their home insurer before work started. This is issue is particularly prominent amongst older renovators; a third (34%) of the millennial homeowners we surveyed informed their insurer before work started on their renovation compared to only 10% of the over 55s.

Top claims: Insurance claims data highlights that over the past three years, theft of materials is the most claimed-for peril by those undertaking major renovations. Overall the top 10 insurance claims for renovation and extension projects are:

1.       Theft of materials and plant

2.       Escape of water (e.g. burst pipes and water sources connected to the building)

3.       Storm damage (damage from storms excluding flooding e.g. high winds)

4.       Flooding from ground water (flooding from rainfall/storms)

5.       Party wall claims

6.       Public liability

7.       Fire

8.       Ground movement

9.       Accidental damage

10.    Malicious damage

Phil Thorn, Head of Direct Home Insurance at Hiscox UK & Ireland commented: “The decision to improve instead of move is a new normal for homeowners whose lifestyles are evolving. People are looking at ways to adapt their existing homes to meet their changing needs, whether that’s a growing family or the beginnings of a new home business. Many view home renovations as an easier or more economical alternative to moving, but our report highlights that these projects are often underestimated in both cost and scale.

“Not telling your insurer about a renovation is a huge gamble, during a period where a home is often unsecure, more exposed and generally more at-risk than it would be normally. That could be the potential for storm damage because of an open roof, the theft of building materials or personal possessions, even damage to a neighbour’s property. In some cases, such as larger more complex home renovations, insurers may reduce or withdraw cover when work is undertaken, so a separate renovation and extension policy will be needed.

“A key misconception is that ‘my builder’ covers this. Contractors may have elements of cover in place but this can often be patchy due to exclusions – work carried out over a certain height for example, might be excluded, or renovations that involve particular activities like demolition or the application of heat such as blow torches. Having the right level of cover in place before work begins is so important, as if things do go really wrong, homeowners can rely on their insurer to cover the cost and avoid headaches such as taking legal action against tradesman who cause damage.”

Additional insights

Cash really is in the attic: UK local councils have seen a near one third (29%) rise in the number of planning permission requests made by homeowners over the last ten years. Requests for loft renovations have seen the greatest increase at 114% from 2008 to 2017, closely followed by living room extensions (113%). There has been a steep decline in planning applications for conservatories over the same period (-74%).

Renovating for returns: According to estate agents, adding a bedroom does the most to boost the value of a home, with the average bedroom extension delivering an 11.2% increase (£25,383 in today’s property prices). A loft conversion (10.8%) and extending with a new kitchen-diner (10.8%) are estimated to add similar amounts

Sticking to a budget and schedule proves problematic: Today’s renovators typically set a budget of £16,100 per project and allow five months for work to be completed. But the experience of past renovators (projects completed 2008 – 2017) suggests this may be optimistic; two in five (40%) overspent by an average of 20% (or £3,200 in today’s budgets). Delays also bedevilled 35% of past projects, with the average delay lasting three months.

Biggest renovation challenges: Living in the property whilst work was carried out proved to be the biggest challenge, according to 40% of  for those who’ve completed renovations (40%). That’s followed by finding the right tradesman and experts (34%) and staying within budget (25%).

Renovations spark neighbourly disputes: Looking at previous renovation projects and those currently underway, just under one in six (17%) has sparked some form of neighbour disagreement. Issues include neighbours officially (through the council) and unofficially (to the homeowner) complaining about the project and are most prominent in London where two fifths (39%) of projects result in some form of dispute.

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