Trapped in your home? Extending could be the key

A little more space is a common wish for homeowners, especially now when moving to upsize can be a struggle due to restrictive mortgage finance. But extending your existing property will take a huge bite out of your savings, and you might not see a return when you come to sell.

The slow property market combined with the recession is forcing many families to look at expanding the space they have, with the most popular extension being the transformation of a kitchen into a kitchen/living space. However, loft and basement extensions can add extra bedrooms, potentially boosting your property into a new price bracket.

For all types of extension you will need an architect, a structural engineer, a party wall surveyor and a building contractor. Companies often package most of these (with the exception of the party wall surveyor and sometimes architects' fees) into their quoted price. A basic design will be done first, and once you are happy with this the process kicks off.

There are three statutory hurdles to jump before work can begin. For extensions that exceed certain height and "footprint" dimensions, the first is planning permission or permitted development, both of which are granted by your local authority. This application usually costs about £150. Next up, your architect's design must comply with buildings regulations, which dictate certain standards for the soundness of the building, fire safety, heat loss performance and other criteria. You can be refused planning permission, but usually there is a solution if your proposed extension doesn't meet building regulations, but the controls cost significantly more (usually about £600-£700) and the more space you want the more you'll have to pay.

Once you've passed through both of these stages you must get a party wall survey, which looks at neighbouring properties that might be affected by the works. "What we do as party wall surveyors," says Stephen Hopps, partner at the Hopps Partnership, "is a thorough inspection of neighbouring properties that records all pre-existing cracks or structural problems. The schedule produced tells everyone what was there before the work started and makes it much easier to negotiate repairs if damage does occur."

It is not just neighbours with whom you share a wall that are covered under the Party Wall Act. If you are altering the foundations of your home any neighbour within six metres can be affected. The average cost of the party wall award document is between £1,500 and £2,000. However, if you live next door to a block of flats, each flat tenant, owner and even the owner of the freehold must be notified of the works separately. This can be time consuming and costs will rise with each inspection and notification.

The cost of the work itself will vary according to what kind of finish you require and how big your property is. Jason Harris, principal architect with extension specialists architect-yourhome.com, says, "A lot of the choice of how much an extension costs is down to the tastes of the client. You can change the amount something costs by 1,000 per cent really easily – a tap for £20 instead of £200." The cheapest extensions to be had are loft extensions, which on average cost around the £30,000 mark. A basement extension is much steeper, with the average cost for a 500sq ft conversion costing up to £150,000 in London. Of course, if there is a basement already in place and all that is needed is turning it into a living space, then costs can be much lower. Overall, the average spend on extending a property is a lot less, between £40,000 and £60,000.

To get the cash to pay for an extension, many try to get a further advance on their mortgage. "Most people when they are doing a home extension go at it by remortgaging their current property," says Mark Loydall, director of financial advisers Cambourne Financial Planning. "But the big problem is that valuations are coming back much lower than previously, so in some instances there is no scope to borrow more money on top of the existing mortgage."

Personal loans tend to be more costly, are often capped at £25,000 and are expected to be repaid over a shorter period of time, making them inaccessible for many homeowners. For the over-60s or those who are retired, equity release is an option. However, Craig Taggart, head of mortgages at financial advisers Baigrie Davies, would not recommend it. "With equity release, anything you gain on an extension you'll end up paying for," he says. "Equity release is expensive: fees and interest rates are high – you'd almost be better doing it as a personal loan."

Before you embark on any work, getting a reliable contractor is key. Mr Hopps says: "Use the right people to do the work. It's just not worth saving a few thousand by going cheap. Be very wary." Maggie Smith, sales and marketing manager of the London Basement Company, adds: "You should look into the history of the company you take on. Ask to see at least two jobs that they've carried out." This will ensure you know what you are getting before you pay out.

You also need to make sure that your home insurance covers you for any damage to surrounding properties or your own. Nevertheless, it's important to check out your contractor is insured. After the extension is completed, you will also need to verify that the new rebuild value of your property doesn't exceed the amount you are covered for.

"In the majority of extensions, you won't get all your money back but you'll have the benefit of a better house," says Miles Shipside, commercial director at online estate agents rightmove.co.uk.

As a rule of thumb, Mr Shipside reckons extensions add between 50 and 75 per cent of the cost to the value of the home. "If you are going to extend, it's better to go up than down," adds Mr. Shipside. "It's a lot cheaper; the space is already there as well as the light, and more bedrooms and en-suite bathrooms add value."