Prices are disproportionately higher for larger houses so converting a loft into bedrooms and bathrooms can boost a home's worth enormously
With net yields only 5 per cent in central London and not much higher elsewhere in Britain, some investors may find small-scale property development more profitable than buy-to-let.
A shortage of space, particularly a scarcity of large family homes in more prosperous cities, means investors can increase the capital value of a house enormously by extending it.
Values are disproportionately higher for larger homes, according to a property website. Portal Propertyfinder.com has found that a two-bedroom home is 1.29 times the price of a one-bedroom home. A three-bedroom costs 1.72 times more than a one-bedroom home and a four-bedroom home is 2.6 times the price of a one-bedroom home, its analysis of properties on its website reveals.
Propertyfinder director Nicholas Leeming said: 'Of course, larger houses have additional reception rooms and bigger gardens, but the number of bedrooms still provides a reliable rough guide to Britain's property ladder. A fourth bedroom costs almost as much as an entire one-bedroom home.'
The relative value of large properties compared with small properties in the capital is not far out of line with the national average. Leeds shows the greatest divergence in value between large and small properties, with four-bedroom homes 3.34 times more expensive than one-bedroom homes. Liverpool and Manchester show the least divergence.
The cash value of each bedroom is greatest in the big financial centres of Leeds, Edinburgh and London. A fourth bedroom in Edinburgh at GBP186,000 ($2.71 million) costs almost as much as the GBP190,000 needed in London. But a second bedroom in Liverpool costs only GBP5,000, almost a tenth of the cost of a second bedroom in Cardiff, and by far the cheapest in the country.