Negative Equity - More Common Than You May Think

Let’s set the scene:

A successful couple, doing well for themselves, possibly moving to the area or from a smaller house locally, with the ambition to create a family home.

The area is a very affluent town and popular commuter stronghold.

The couple have some money behind them and want to buy the cheapest house on the best road they can afford – a real project home. The dream.

Being that the town is so desirable, the competition is strong and the market is unforgiving.

They find the house, fight off the competition, do the deal and get the keys.

A dated home with huge potential. It needs starting again with: extending, re-plumbing, re-wiring, new bathrooms, a new kitchen, and re-plastering throughout. The works.

Then there’s the Smart Home AV system and some other ‘must-haves’ that a home in this bracket requires.

Finally, the building work will ruin the garden – not that it’s great anyway – so it will also need a new driveway and patio, and then some soft landscaping when the budget allows for it.

Sensible budget in hand, they head off to an architect who listens to their brief, runs some concepts, and finalises an incredible design.

The planning application is submitted and, after the council finally comes back with their decision (6 weeks late), it’s great news – approved.

Whilst waiting for planning, the client has been proactive and employed a local interior designer to help with the specs. A beautiful scheme which lands right on the mark.

It’s time to go out to market.

Builders, armed with all the necessary information and with every question answered, come back 3–4 weeks later with their prices.

Unsurprisingly, the numbers are higher than expected.

The numbers: (we’ll keep them simple)
House, including fees and SDLT – £2m
Building work, fixtures and fittings – £1m
Total investment – £3m

Here’s the kicker:
The house is only worth £2.75m when all is said and done.

The clients didn’t realise this was coming and either can’t afford it or don’t want to put themselves in that position.

The reality:
Whether it is a substantial refurbishment or a knock-down and rebuild, negative equity is the price you’ll likely pay to build out your dream home in an affluent area.

We see it over and over at all price points. It’s not guaranteed, but it’s likely.

Building your dream home is well worth it, but understanding what you are getting yourself into when you are buying into a large project is key.

If you are local to Sevenoaks or the surrounding areas and want to run some realistic numbers, we’re always here to help!

Jeremy

Our post-construction phase framework.

  • Deep Cleaning – We employ professional cleaners who understand the importance of the products they are using and the methods they adopt.
  • Completion inspections – We go over every inch of the project to ensure that the work meets our incredibly high expectations.
  • Submission of Certification – We submit all certification to the building inspector/s to achieve project completion.
  • Handover – We carry out a full walk-through with our clients so that they can be shown the operations of all new equipment.
  • Operations & Maintenance Manual – We assemble and present a full O&M folder with guides for any new systems and care instructions.
  • Documentation Pack – Alongside the O&M manual, we assemble a documentation pack for any work completed which includes as-built drawings, service mark-ups, specification packs and relevant certifications.
  • Contacts Directory – Beyond being the main point of contact, we also form a comprehensive list of contacts which have worked on the project.
  • 12 Month Rectification Visit – As standard on any project, we always return after 12 months to carry out any snagging.
  • Ongoing support – We are there for our existing clients, long after completion. From handyman tasks to full maintenance plans, we offer a level of service which is not offered to the wider public.

Our construction phase framework.

  • Internal Inspections – There are a host of inspections to be completed and recorded on a daily and weekly basis. From welfare facilities, tidiness and security to major safety considerations such as scaffolding – our site agents use a centralised mobile application, where we have created bespoke templates to follow and track all of the inspections.
  • External Inspection – We organise and fulfil compliance inspections from building and warranty inspectors and our third-party health and safety inspector.
  • Meetings – We hold official weekly site meetings for the project team and all parties which are affected the current or imminent programme. We also hold official progress meetings, normally on a monthly frequency, with the clients and wider project team.
  • Reviews – We constantly review and tweak all of the various pre-construction project plans and main programme, issuing any changes to the project team and client.
  • Quality Control – Anyone working on our sites knows the exceptional standards we expect, but we still remain vigilant and ensure that the standards are met in every detail.
  • Information Collation – we collate and present all building control inspections, product warranties, operating and maintenance records and start to form the post-completion documentation.

Our pre-construction framework.

  • Define the Project Scope – We sit down and evaluate the drawings, technical specifications and information schedules before setting out clear project objectives, deliverables, a breakdown of key components and a list of possible conflicts.
  • Set a Project Programme – using the agreed scope, we layout a project programme. We do this using GANTT chart software which is a tool to visualise and rationalize time scales.
  • Form a Cost Management plan – we use the costing documents and project programme to estimate financial forecasts.
  • Form a Risk Management plan – we seek to find, highlight and plan for any items which may create risk to the programme or budget.
  • Form a Health and Safety plan – this is an extension of our Construction Phase Plans and highlights our use of developed Risk and Method Statements.
  • Create a communication plan – how we inform any external parties like neighbours of work that may affect them, we look at setting on/off site meeting frequencies, expectations for the transfer of information in RFI’s (requests for information), completion of various Registers and form a centralised shared information hub.
  • Form a Procurement Plan – We assess the lead times of all proposed materials and trades and map these against the project programme to highlight any risks to the programme. 
  • Highlight Quality Concerns – we review the selected materials and specifications to assess any areas which will need careful quality control to meet our high expectations.

Our compliance commitments:

  • Qualified and competent personnel for every role, including Site Manager.
  • Safety Training Scheme (SMSTS) qualified site agents.
  • Dedicated Construction Phase Plans.
  • Fully developed Risk Assessments and Method Statements (RAMS).
  • Thorough Fire Control and Emergency Plans.
  • Detailed site inductions for all personnel and visitors.
  • Correct and clear site signage and first aid stations.
  • Regular inspections and maintenance of all plant and equipment by qualified third party inspectors (LOLER).
  • Daily inspections of plant and equipment.
  • Regular site inspection audits by a third party health & safety consultant.