SCAF 2013 The Economic Case: Team BMT

Transcription

1 SCAF 2013 The Economic Case: Team BMT Bristol 23 rd April Oliver Markwardt James Mackinnon Dr. Francisco Romero Rojo OO

2 BMT Group An international network of subsidiaries providing engineering, design and risk management consultancy Wholly independent partner providing customers with access to expertise around the globe Heritage of research and technology which drives significant ongoing investment in R&D and development of future talent Formed in 1985 through Government privatisation of maritime research and technology organisations Held in beneficial ownership for the staff 2009 turnover ~ 142 million Over 1200 staff in 29 subsidiary companies in Europe, North America and Asia OO

3 The Challenge Extracts from SCAF brief Your partner tells you the good news that you are going to have twin babies and you quickly realise that the property that you have will not be large enough and you have a financial decision to make in the near future. There is sufficient land around your current property to build an extension which will accommodate another bedroom or you could move to a three bedroom house? OO

4 The Challenge Approach Justify the requirement Development of possible options Short-list the options Time horizon Costs and benefits The Model Uncertainty / Risks Sensitivity Cases Other Contributory Factors Recommendation (Metric vs. Performance Measures) Conclusions OJ

5 Justify the Requirement The requirement is for a property which will be large enough to house the growing family. Need / Objective There is a need for a larger property with additional bedroom(s) and living space because of the expecting twin babies. The objective is to provide the twin babies with their own bedrooms and to have adequate living space while maintaining cash flow and building equity. Assumptions Not planning for any further additional members of the family. The joint monthly take home pay for the couple is 3k per month. A 10% deposit was put down on the original house price. The couple have 18k of savings. The couple would like to maintain their quality of life as much as possible. JJ

6 Development of Possible Options Options Do nothing; Single storey extension; Double storey extension; Single storey and energy efficiency; Double storey and energy efficiency; Move to larger house (3 bedrooms); Rented accommodation options. And lots more JJ

7 Short-List the Options Now 2 Bed terrace house Single Extension Completion 8 Months Expected Twins Delivery Double Extension Completion Options Do nothing (Benchmark); Single storey extension; Double storey extension; Single storey and energy efficiency; Double storey and energy efficiency; Move to larger house (3 bedrooms); Rented accommodation options. Assumptions The delivery is due 1 st Dec The couple prefer to move or extend prior to the birth. The double storey extension completion is outside the planning window. The mother will not require childcare because her parents live close by. JO

8 Time Horizon Assumptions It is unknown when the next house move is likely to take place, so the time horizon is unknown. The time horizon chosen was long enough to cover all of the important cost and benefit differences between options. The time horizon is the remaining life of the mortgage, 22 years. The couple will remain on the Standard Variable Rate for the foreseeable future. Set at 4.5%. The base estimates are at 2013 economics. No early repayment of the mortgage will occur within the time horizon. OJ

9 Costs and Benefits Extend Single Storey Unavoidable costs Actual House Extension Cost; Alterations to Main House; Administrative and Misc. Expenditure; Interior Decoration and Refurbishment. Benefits Add value to the property; By pass time, effort and numerous fees associated with moving. Assumptions The single storey extension will be 4x3m and will not require planning permission. The house extension will be funded from re-mortgaging the existing house. The extension will add 10% to the property value. JJ

10 Costs and Benefits Extend Single Storey Energy Efficiency Measures Unavoidable costs of previous option plus: Cost of energy efficiency measures Saving per year on house running costs: New boiler Loft insulation Cavity wall insulation Solar panels Solar panel feed-in-tariff payback Assumptions The previous assumptions plus: The energy efficiency costs will be funded from re-mortgaging. The existing house is in Energy Performance Certificate band E. The existing house is suitable for solar panels once the other energy efficiency upgrades are complete. The extension and energy changes will add 15% to the property value. JJ

11 Energy Efficiency Measures Technology Cost Annual Saving Pay back (years) External Wall Insulation 11, Internal Wall Insulation 7, Double Glazing 3, Totals Total Cost 718 Annual Saving Pay back (years) New Boiler 2, Floor Insulation Loft Insulation loft Insulation (DIY) Hot Water Tank Jacket Fill gaps between floor and Skirting (DIY) Primary Pipe Insulation JJ

12 Renewables Technology Cost Annual Saving Pay back (years) Solar Thermal Solar - Photo Voltaic (PV) Typical 3.5kW Solar - Photo Voltaic (PV) Specific 2.5kW JJ

13 Costs and Benefits Move Unavoidable costs Legal fees, Surveys, Stamp Duty Hidden Fees (van hire, council tax ) New property appreciation Assumptions The new house is a semi detached and will appreciate at a higher rate than the terraced property. Moving house costs will be funded from the couples savings. The house move duration from start to finish is expected to last 3 months. The new house is 50% more efficient than the existing house. JO

14 The Model Inputs Case study data Short-listed options Costs and benefits Property value Loan value Calculations Equity Sensitivity cases Data and Assumptions General Do Nothing Extend Single Storey Extend Single Storey (Green) Move House Income Expenses Mortgage payment Existing savings Residual Savings Outputs Discounted cash flow Graph options OO

15 The Model OJ

16 The Model JO

17 The Model OO

18 Uncertainty in Standard Variable Rate OJ

19 Sensitivity Case There is a risk that the wife will not go back to work and the couple will have to rely on one salary. JF

20 Other Contributory Factors Obsolescence A hidden cost of staying in the same house is the fact that it is getting old. Its materials, plumbing installation, heating system, are reaching the end of lifecycle and will need to be replaced soon. If any component in the installation fails, it is unlikely to be able to find a spare part from the original manufacturer. A solution could be to try and find a form, fit and function replacement for that component. Given that the house was built so many decades ago, it might be difficult to find it. The result would be to have to change the whole installation. Potentially, there could be materials in the property that do not comply with the latest regulations (e.g. asbestos). Removing them will result in additional costs. Additionally, in the case of extending the property and getting it re-wired, we will have to ensure that it complies with the latest edition of the current electrical regulations, BS7671. There are insulating issues in the existing property that may result in energy inefficiencies, which implies an additional expenditure in heating. Alternatively, an investment will need to be made in order to improve the house insulation. FO

21 Other Contributory Factors Sustainability Consideration of three equal aspects (known as the three pillars): Economic Environment Social OJ

22 Recommendation JO

23 Conclusions The decision to move or extend come down to a number of factors including lifestyle choice and your budget. Energy prices are predicted to rise and the difference in running costs between a draughty Victorian house and a near-airtight new build will become significant in the decision making. Upgrading your house or moving house to an energy-efficient one is a great way to make a long-term commitment to conserving energy and reducing your expenses. Location, price, room sizes and layout are aspects of a home that are difficult or impossible to change, but the energy efficiency of a house can always improve. Ultimately, only the couple can decide what answer makes the most sense. OO

24 Thank you BMT Reliability Consultants 12 Little Park Farm Road Hampshire Fareham PO15 5SU