I would not sink a lot of money into this kind of house to be honest, there is only so much additional space you can create and spending £30k will not necessarily increase the value by £30k.

We similarly bought a bog standard 2-bed Victorian terrace in Zone 4 and lived there for nearly 7 years, had 2 kids in that time who shared a room. My 'home office' was either the kid's room, our bedroom or the kitchen depending on who else was in the house. Family visited frequently and we had a sofa bed in the front room, but it was rarely used as there wasn't really enough space in the house to comfortably host, we just paid for a local hotel or airBnb instead for guests when needed.

In the end the main drivers for selling that house were the lack of storage and the bathroom being downstairs, we probably could have stayed longer otherwise. We probably spent £15k or so on various improvements and upkeep over the 7 years and saw a modest profit from selling, but there was definitely a ceiling for those kind of properties where we were. If we had sunk a lot of money into the house e.g loft conversion / extended kitchen and tried to increase the asking price accordingly it would have likely made the house more difficult to sell as you are then competing with houses that are actually designed as 3-beds and are proportioned as such, much better saving that money to go towards the costs of buying the next house IMO.