Thank you Bozza! I'd estimate my house to be around 190k and the 3 bedroom house next door to be worth around 25-40k more based off what other older houses in the street have sold for recently. It's hard to judge as our 5 houses are only 8 years old and have not been resold, but are a lot newer and a different style to the older houses in the same street, and generally have larger living spaces than the older ones so id expect them to be valued the same or slightly higher.
I think if we could do the conversion and make it cost neutral of the value it would add to the house then it's worth considering, as there arent a lot of great options in the area in terms of location to move to, and we would really need to make the jump to a 4 bed to make it worth moving, which would cost quite a bit more, especially if we tried to stay in a better area.
The balcony idea would be my preference just becasue we have really nice views, but if it would be very expensive to retrofit then I may have to park that idea and go with the simpler windowed option!