Calculating your budget is easy when you know how and is so important to get right so that you avoid potential disappointment.
Unless you are blessed with a bank account that benefits from a billionaire trust fund it’s likely that you’ll need to be sensible with where you splash the cash to ensure you have enough for the actual structure!
It’s a delicate balance between having everything you want and what is feasibly affordable and it is so easy to overspend in areas when you get excited and you don’t have a budget plan to stick to. When this happens, something else will have to give or you’ll be left with an unfinished project.
To set a budget there is an easy formula to utilise:
1) Identify How Much You Have Available
As a start, you should identify what you have available to invest in your new extension. This figure represents the absolute maximum spend you can make without having to start selling up your prized collection of china that your nan handed down to you. We will call this figure A.
Savings plus property equity = £125,000 (A)
2) Identify What Your Property Will Be Worth
This is relatively easy to do with sites like Rightmove and Zoopla at your disposal. Search for sold house price data and calculate what your property is currently worth and what it will be worth once the proposed works have been completed. Bear in mind that your road will likely have a ceiling price (currently the highest sold price for comparable property). The difference between those 2 figures should also represent another budget indicator because you don’t want to end up with a home that is overdeveloped and unmortgageable. This is especially important if you plan on refinancing your home to release funds to pay for all or some of the extension costs. We shall call this figure B
Current property value = £535,000
Price of propety following completion of the work = £680,000
Difference between = £145,000 (B)
3) Choose An Amount You Feel Comfortable With
You might have some nice healthy numbers for your A and B but that doesn’t mean you would feel comfortable spending all of it. Pick the lower of the 2 numbers and multiply it by 0.85 to give you a number that is 85% of what you can afford or what the potential increase in property value will be.
This will leave a nice buffer should the unexpected happen.
In our example our available funds are the smallest of the 2 figures and is the limiting factor so,
A = £125,000
£125,000 x 0.85 = £106,250 = Your budget!
Armed with this figure and your project idea, you can now start speaking with your builder who will be able to advise on what your budget can afford and whether you will need to make compromises (if any). It is so important you share this information at the outset because I’ve seen people get really excited about their designs, get it drawn it up and sent out for tender and have the stark realisation they can’t actually afford it. An experienced builder will be able to advise on your most economical route to get the most bang for your buck.