Remodelling your family home can make more sense than pulling up roots and moving

THE daffodils and crocuses bursting from their winter slumber these past few weeks mark the renewal associated with spring. The season may also mean big changes for some families as it is one of the most popular times of year to move home.

For the foreseeable future, the Irish property market seems strong but homeowners should consider a new look at their current home before uprooting the family and taking on a much higher mortgage payment.

A simple redesign of unused space or redecorating with brightly or lightly coloured paint and wallpaper can make all the difference to your living situation and your wallet.

Many financial factors make moving house unattractive unless it is absolutely necessary. "Given the level of punitive stamp duty, it makes a lot of sense for people to maximise the space of existing facilities. It's very expensive to move at the moment," says Mr Richard Eberle, managing director of REA mortgage services.

By deciding to extend or improve an existing residence people also eliminate the costs involved in purchasing a new house including legal and other charges, says Mr Des Byrne, director general of Irish Mortgage and Savings Association, the organisation representing the major mortgage lenders.

Although the current lending environment may seem like good news for borrowers, obtaining a mortgage beyond your means may spell disaster in an economic downturn. The Central Bank is constantly examining the economy, including the property market, and urges lending institutions and borrowers to be cautious in their credit practices.

"The pressures of competition, however, and the feel-good factor generally, over an extended period, may lead to misjudgments on the ability of borrowers to meet their obligations in more difficult times. In addition, the present good health of the industry, the low level of bad loans and the ready availability of liquidity may encourage undue flexibility in individual lending decisions," said a recent Central Bank statement.

Deciding to upgrade your home may be an expensive proposition. But says Mr John Graby, director of the Royal Institute of the Architects of Ireland (RIAI): "Improving your house does not always mean a large extension it could be refitting or replanning.".

Sometimes, family needs are best met by remodelling to suit a growing family. This might mean providing quiet study space for older children or more storage space in the kitchen and playroom.

Mr Graby says RIAI advocates remodelling homes to accommodate lifetime housing needs which means making the kinds of changes appropriate if someone's mobility is reduced. This is not just through illness but can be through old age or pregnancy.

It is important to identify the need in the home rather than jumping immediately to the solution, he says.

"Suppose you're in a house, the kitchen is very small and you can't fit in the washer and dryer - that is a statement of your need. Many people jump right ahead to the solution rather than a statement of need. In this case it may mean replanning the kitchen or refitting it." Large building projects are often the last option to be considered. "An extension might be the answer but you must ask: how much do I have to spend? How much will it cost? Will I have problems with planning permission," says Mr Graby.

Of all the questions, the most important to ask is: "How much destruction can I tolerate?" he said.

If you would like a kitchen extension built but cannot tolerate workmen in your home and limited access to your kitchen for months, then consider a less invasive remedy.

Once a family has decided to rethink their home rather than move, they may contact the RIAI which can nominate architects for projects around the State. Members of the public should fax their request making certain to include where they live and the type of work they would like to have done on their home. RIAI has a list of architects specialising in domestic work and it will provide names of three or four specialists in the relevant area.

The good news is that money for home improvements is relatively inexpensive and easy to obtain. "The obtaining of what the industry calls a `top-up mortgage' is a simple and generally inexpensive process. The mortgage lenders generally more than welcome, even promote, this type of decision," says Mr Byrne.

These loans make up a high percentage of banks and building societies' business so competition for customers is fierce, putting the buyer in the driver's seat.

"In a situation where property prices are escalating, not all borrowers may be aware of the huge amount of equity they hold in their house. Mortgage rates are so low at the moment, for example a variable is at 5.25 per cent. It is a very cheap form of borrowing as compared to other sources of funding," he said.

Sit down with your bank manager and compare what deals they offer to new clients versus old clients, says Mr Eberle. Banks offer better deals to new customers and often there is a 1 per cent discount between the existing rate and the rate offered to new home buyers. This is particularly true of one-year fixed products.

"For example, the AIB group one-year, fixed for new business [rate] is 4.7 per cent and the one-year fixed for existing customers is 5.8 per cent," he said. Homeowners should be aggressive about shopping around for their mortgage since the market is so competitive.

At the moment, the rates on offer are a bit of a mix, says Mr Eberle. "The cheapest variable is EBS but they're more conservative as a lender. They're 5.1 per cent and the most expensive institution is 5.75. It may not seem like much but 1 per cent over time can add up to a good bit of money, it can be up to £7,000 to £8,000 over 20 years."

Make sure to examine the cost of the loan over the long term. "Don't get suckered in by cheap introductory rates. It's a clever marketing device by the banks. They offer a cheap first year and then you tend to take your eye off the ball after that. Don't forget you're going to be paying for it later on," he warned.

The way customers structure the new loan is up to them. It may become part of the existing mortgage or be treated as a completely separate loan.

So, even if your current loan is a fixed rate with 10 years left to pay, the top up may be structured as a variable five-year loan. For convenience, it might make sense to assign the same term on your top up.

If you do not specify the bank will probably put it on a 20-year term.

Although interest rates are very competitive, some credit institutions offering lower rates will not lend the amounts needed for extensive remodelling.

Even though money is readily available most of the time, it is essential that your expectations for improvements are in line with reality. "Functionally, the redesign may work very well but there usually is not a direct correlation on improvements and the extra value of a house," says Mr Eberle.

Make home improvements for the needs of your family, not as a way to increase the equity of your home.