Australia’s renovation boom has continued to power ahead as homeowners and investors look to cash in on the hot housing market.
According to realestate.com.au’s latest Property Seeker report, homeowners and investors are spending an average of $76,000 on home improvements, with this figure ballooning to $107,000 for those renovating with the aim of selling or leasing their property.
The report, which surveyed 6,700 Australians in December 2020, also found people making improvements instead of moving had a slightly larger budget of $108,000, while those motivated by style and requirements spent the least on average, at $68,000.
It comes as recent data by the Australian Bureau of Statistics showed lending for renovations reached the highest level since 2009 in February, while the value of council approved alterations and additions rose 11% to $973.2 million – just below all-time highs.
“Households have changed their spending habits in response to the COVID-19 interruptions,” said Housing Industry Association Chief Economist, Tim Reardon.
“Many have diverted funds that would have typically been spent on travel and entertainment into buying a new home or improving their existing one.”
Savings driving renovation spend
While government schemes like HomeBuilder – which expired in March – have been widely credited for boosting renovation activity during COVID-19, minimum spending requirements and income caps mean homeowners and investors were also forced to look elsewhere.
To have been eligible for HomeBuilder, applicants needed to earn less than $125,000 for singles, and $200,000 for couples, and spend between $150,000 and $750,000 on a renovation. Other criteria included limits on the value of the property.
Since many renovators didn’t reach those requirements many turned to their savings instead, with the Property Seeker survey revealing 72% of home improvers either had, or planned to, use their savings or redraw on their home loan to finance their home improvements.
At the height of the COVID-19 uncertainty, households put aside an extra $100 billion in savings to weather the economic storm, and the RBA estimates a further $40 billion was pumped into mortgage offset and redraw accounts between March and December last year.
In its latest Statement of Monetary Policy, the RBA said the increase in payments “is likely to reflect a combination of reduced opportunities for spending, mortgage holders saving for precautionary reasons, and some borrowers depositing cash received from early release superannuation and fiscal payments into these accounts.”
What are my other options?
Government stimulus is largely winding down, and not everyone has built up a savings war chest large enough to fund an entire renovation.
So, what are your other options?
According to the Property Seeker survey, Australians also funded their renovation projects through a credit card, tapped into their equity through refinancing, or took out a personal loan.
Your finance choices
When it comes to financing a home renovation your main options are to:
- Use the equity in your home
- Redraw from your current loan
- Use a line of credit
- Refinance your existing loan
- Apply for a personal loan, or
- Consider a building and construction loan.
The option you choose will depend on your particular circumstances, but some lenders will require you to take out a particular type of loan for a renovation. So it’s important to look at the pros and cons of each option, and also to consult your Smartline Mortgage Adviser upfront about the right finance option for you, so that you can achieve your renovation sooner.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.