An open floor plan and lightning has become an imperative feature in homes today. The days of having compartmentalised rooms are gone. But breaking down one or two walls is not always as easy or as economical as it seems.
There are numerous things you need to consider and having patience is one of them, as this involves approvals and unforeseen incidents that can or might occur.
That’s why certain precautionary measures need to be put in place.
“We expect that a renovation or extension will add value to our home, but we need to ensure that we do this wisely so as not to over capitalise, and land up investing more in our homes than we could ever realise should we want to sell,” said Carel Grönum, managing executive of Absa Home Loans.
Grönum adds: “It is therefore imperative, that homeowners do their homework well before starting any project.”
You will need to consider what time of the year would be practical to make drastic changes to your home, as it’s not conducive to build during winter due to high chances of rainfall in certain areas in South Africa.
For some this can be a fun project, while others might find this to be a nightmare. That is why budgeting for a renovation is crucial, as it is very common to go over budget before completion date.
We tend to get so consumed in worrying about colour pallets or marbles floors that we overlook laying down our ground work, such as insurance policies, extended bank loans, approvals etc.
“You will not be able to sell your house without the required building plans, so an understanding of what permissions you require is critical,” highlighted Abel Mngadi, head of product growth at First National Bank (FNB) Home Loans.
If one is planning to renovate there are particular kinds of insurances that can be taken out to avoid unexpected disasters.
Lee-Ann Dobrescu, head of group business development at Hollard informs us: “All homeowners should have what is known as Homeowners (buildings) insurance (if they have a bond the banks insist on it). This covers them for sudden and unforeseen events, such as fire, lightning, explosion, storm, wind, water, hail, snow, impact and malicious damage. This also normally includes property owners’ liability. The insurer on this policy needs to be advised that renovations are in progress, the extent of the work and if the property will not be occupied during the works. Some may apply a higher excess for this period and would normally exclude loss or damage caused by the work (hence
the need for the work policy). We do have the new Hollard home warranty product which covers the owner for defects to the property.”
When enquiring about insurance for renovations, Natasha Kawulesar, head of client relations at OUTsurance informed us that OUTsurance offers a compressive buildings cover product.
Kawulesar added: “It is important that we are informed of all renovations at the client’s OUTsured property as the changes being made to the property may affect the cover we provide and the premium charged e.g. changing the roof style from tiles to thatched will result in a higher premium as the risk exposure is greater.”
“We also have additional cover options under our buildings cover that clients may opt for should they require the additional cover e.g. comprehensive subsidence cover,” said Kawulesar.
The above does not apply to any general maintenance.
Bank approval for renovation
Bank approval for renovations would be determined by two factors:
- Whether the customer requires financial assistance from the bank in order to attend to the renovation, i.e. if the renovations are of structural nature which is a more involved process than general, like painting your property.
- If it is a major structural renovation where the current security offered by existing property is going to be changed, e.g. the gutting of a property with the plan to re-build.
According to Zintle Letlaka, manager of group media relations at ABSA, “in this case, irrespective of the customer’s financial situation, the bank would need to approve the renovation as the banks security is being placed at risk.”
She added: “When considering major renovations to a property that would impact on the security of the property, even for a short period of time, the bank would need to give approval.
Also take note of local authority approvals required when undertaking major/structural renovations.”
Steps for loan approval
“A full application will have to be submitted for the increased loan amount. Apart from the credit approval, the customer will have to submit documents such as approved plans, schedule of finishes and fitting, minimum specifications and a signed building contract with an NHBRC approved builder,” said Letlaka.
Specific insurance needed to get approval from the bank
“It is compulsory to insure the property for comprehensive insurance from the date that the property is fully completed or from the time that occupation takes place,” noted Letlaka.
The customer can provide an insurance policy (from a company of their choice) to their bank. The policy would need to be approved by the bank in order to comply with minimum requirements.
Home owners who have taken out bonds
If you are a homeowner with a bond or would like to take out a bond for a home renovation, there a numerous things that would need to be considered.
Chloe Hackland, corporate communication manager at FNB revealed: “Customers can apply for a further loan on his or property and use these funds for renovation.”
“The further loan application is subject to credit approval and a satisfactory property valuation”, says Tshegofatso Selahle, communication manager, Nedbank.
Hackland also adds,” He or she would have to have a clean credit record and be up to date on all his debt repayment commitments for this to be a consideration.”
At banks such as ABSA, you have the option of further advance building, this option allows you to increase you existing loan based on structural renovation increasing the square meterage/size of the property, e.g. an addition of a bedroom, a swimming pool, or a boundary wall. This type of renovation would increase the value of a home loan specific to planned renovations, credit lending rules will apply.
There is also the re-advance option, which allows you to increase your original loan amount, with this option the planned renovation can be done on a cash basis, unless the plan is to gut the property thereby impacting on the security value of the property that is serving as security to the bond / home loan amount approved (credit lending rules apply).
Contractors – Professional Help
You will eventually need some form of professional assistance during the project e.g. hiring builders and contractors.
“The best way for the homeowner to ensure that all the various contractors (builders, plumbers, electricians etc.) and the works performed by them are covered is to take a small contract works, policy, ensuring that it includes cover for damage to the existing structures and liability to third parties. If the renovation is being managed under one builder who is sub-contracting the rest, they can insist this builder provide proof that they have this cover with a reputable insurer, that premiums have been paid and that the excesses and exclusions are not unreasonable. The benefit to the homeowner of taking this cover themselves is they will have certainty that cover is in place, be aware of the exclusions and ensure that the necessary extensions are in place. Making use of a good insurance broker to provide the necessary advice on how to structure this cover around the nature of work being done is essential,” said Dobrescu.
But how do you know if your contractor is certified in the right areas and has risk covers? Kawulesar adds: “You may check with the NHBRC if the contractor is registered with them.”
The NHBRC (National Home Builders Registration Council) stated: “Our goal is to assist and protect consumers who have been exposed to contractors who deliver housing units of substandard design, workmanship and poor quality material.”
Injury on site where renovation takes place and unliveable conditions
Homeowners should also investigate whether or not the contractor is liable for any injuries occurring on the renovation site.
“This really depends on what caused the injury but in general terms – For workers they would all be covered under the Workmen’s Compensation Fund (assuming the employer has made the necessary submissions and payments) this is more blurred for temporary workers. The builder or homeowner could very well be liable for injury to other people or damage to other’s property and hence the recommendation to take the necessary contractors liability cover for liability incurred on the site,” stated Dobrescu.
Also, certain home owners might find themselves in a situation where their home are in unliveable conditions while renovating, so you need to ensure that you can budget for alternative accommodation or take out some kind of insurance cover.
“Depending on the extent of the work being done on the site (i.e. their view on the likelihood of this occurring – some people are a little over ambitious about the feasibility of remaining in the home or the nature of what is being done could be quite high risk and have a high chance of this occurring) the small works policy can be extended to include the reasonable costs incurred by the owner should the property becomes unsafe to occupy due to damage caused by the contractors,” added Dobrescu.
Homeowners need to make use of services of regulatory and body of home building industry in order to ensure they make use of reputable builders; and make sure you have an understanding of what permissions you require.
Being prepared for unforeseen circumstance and having a solid foundation is a must when it comes to planning a renovation project.