Sounds like you have a good plan, call an experienced, recommended, reliable contractor. Maybe he/she can help you with an interior room divider, for the front door direct to lounge problem too. Here are some ideas https://www.houzz.com/products/room-divider-prbr0lbl-pl~l_38829

A pergola will obstruct light into the structure. What is the structure used for? How do you plan to use the deck for? Eating? Sitting? etc? Plan the activities and the furniture you'll need and draw up a floor plan. Floor plans are important outside & inside. The steps to the deck from the lawn are a little too abrupt. Needs a transition. Consider adding cement pavers to the grass, not as an extra patio but for a nicer transition design.

Thanks for responding. We're in Auckland, New Zealand and close to the sea. Outdoor living is quite important but it does get chilly in winter so it's a balance. There are three adults and two young children in the household (one of the adults is an Au Pair who likes to spend time in her own room in the evenings). The kids will watch their cartoons generally in the morning and a bit before dinner. Then in the evening my husband and I will relax and watch TV. Right now the kids' toys are in the family room downstairs. We are foodies and like cooking. Generally when guests come over we all hang out in our small kitchen at the moment. The dining table we use for every meal time. We also like the idea of being able to get to the deck from the kitchen, rather than having to carry food in summer through the lounge/dining. The entry way is that big in order to reduce on the structural work but also in order to ensure that the door to the staircase is not in the lounge.

Thanks for the replies! My wife suggested we talk to a local real estate agent, so i think that is a good idea... just that Im not sure how helpful they are likely to be if we arent selling yet :) As for saving for our dream house, I dont disagree, however if doing this up nicely over the next ~5 years or so while we live here nets us some extra in the eventual sale, then that of course will help us as well. Interesting thing happened today actually. I got a knock on the door and one of the older neighbours asked if he could take some lemons from the tree. I of course said yes. Anyway he was telling me he had lived in the street for 40 years. I asked him if the house had always looked like this, and he said no that ~30 years ago the old old owner did a massive renovation and pulled off the timber and put up the bricks and gutted the inside of the house. Interesting stuff!