Nick Cunningham of Stacks Property Search says, “Annexes have always been in demand; buyers have looked for secondary accommodation that offers infinite flexibility serving as a halfway house for children who haven’t quite flown the nest, occasional space for relatives or guests when and if required, a permanent home for elderly relatives who can no longer live alone, or for a nanny or au pair. They can provide valuable income if finances become tight.
“A combination of factors, notably Covid, rising interest rates and increasing costs of living, has resulted in a surge in demand for properties with an annexe; homes with good secondary accommodation are attracting a premium.”
So how can buyers establish when that premium is justified, and when the price doesn’t stack up?
Nick Cunningham says, “Beware of a price that’s based on income. Many vendors have invested heavily in secondary accommodation that’s been used for holiday lets in a booming market. Historical figures can show high returns which are used to justify elevated values. But this is irrelevant to buyers who aren’t looking for a commercial investment, and buyers who are intending to use an annexe for income should be aware that supply in many areas is saturated, incomes are dropping, and costs associated with turnover, maintenance and wear and tear are high – and climbing.
“Our advice is to ignore all income-based justifications for a valuation when they relate to what is essentially residential accommodation. It should be valued according to its square footage, and how it complements the main property.
Attributes that will enhance value include:
- “A good balance between primary and secondary accommodation; don’t allow a good annexe to detract from a compromised main house.
- “Sufficient space between the main property and the annexe so that the two households can conduct their own lives without being in each other’s pockets.
- “Well defined space surrounding the annexe.
- “A separate entrance is vital.
- “Potential for extending / improving.
- “Separate parking – very annoying if your teens or lodgers steal the last spot.”
Factors that should be taken into consideration when assessing value:
- “An annexe that relies on the main house for essential living shouldn’t be termed an annexe, it’s essentially a spare bedroom or a studio.
- “A low EPC rating.
- “It must have its own kitchen and bathroom and sufficient living space. It should have its own curtilage and dedicated outside space, even if it’s just a small terrace or courtyard.
- “Don’t be tempted to compromise on the main property. Beware a wonderful annexe that’s associated with a main property that isn’t perfect for your needs or that’s compromised in some way.
Other financial aspects that should be considered when buying a property with an annexe:
- “If you’re going to rent the space out, bear in mind that some Local Authorities are likely to start licensing Airbnb properties.
- “Setting up separate accounts for utilities is a headache and a cost, but will save you money in the long term.
- “There are Stamp Duty benefits for properties that have two independent dwellings. The total price of the estate is divided by two and Stamp Duty is payable on each half. It’s not necessary for the two properties to be registered separately. As a buyer it’s important to be aware of this loophole, it may not necessarily be picked up by your advisors.
- “Does the annexe have its own entry in the Valuation List? If it does you will be eligible for Council Tax on both properties.”
Stacks Property Search, 01594 842880 / www.stacks.co.uk