Renovation boom: Lending for home improvement up almost 50 per cent

Home renovations are booming across the nation as record low interest rates, government cash incentives and an unwillingness to buy and sell in a rising property market has homeowners staying put and spending up big.

Data from the Australian Bureau of Statistics released last week revealed the value of home renovation-related lending in January was up a massive 47.4 per cent compared with the same time last year.

And, with the federal government’s HomeBuilder grant scheme due to end on March 31, building industry experts are expecting a frenzied rush of renovation applications before the deadline.

The scheme, which offers grants of up to $15,000 for major home renovations that cost between $150,000 and $750,000 as long as the property is valued under $1.5 million, has already had thousands of people sign up to fix up their home.

Federal government figures show out of the 81,917 applications for HomeBuilder grants as of January 29,  16,504 were for major renovation projects across the country.

The actual number of renovations is likely even higher, says property research and strategy director with Charter Keck Kramer, Angie Zigomanis, because the ABS figures only take into account renovation loans of $10,000 or more.

He said record low interest rates, the HomeBuilder scheme and the pandemic were all fuelling Australia’s supercharged renovation market.

“Through the lockdown people haven’t been able to travel and haven’t been able to spend a lot and a lot of that money has ended up in home improvements as well,” he said.  

“Working from home really crystallised the fact that people needed to renovate — they needed more space.”

While rising house prices had been a boon for many vendors, Kay & Burton South Yarra director Michael Armstrong said the transactional costs of selling a home — like property advertising fees and stamp duty costs — turned some people off moving.

“A lot of people would rather renovate than sell and move especially as the cost of transacting gets more and more expensive,” he said. 

A recent survey by Finder found almost half of Australians looking to renovate their homes would borrow money against their mortgage or get a personal loan. One in four would ask family or friends for a loan, the survey showed.

One in four people also said they would use their credit card to finance upgrades to their home or apartment.

Sarah Megginson, home loans expert at Finder, warned renovators to think about the type of loan they are entering into.

“Personal loans are usually capped at around $100,000. This might be suitable, but interest rates on personal loans are higher than on home loans so you should think really carefully before going down this path,” Ms Megginson said. 

Ariana Margetts, 28, and her fiance Josh Burkin, 30, recently bought a two-bedroom apartment on the Gold Coast and hope to flip the it for a profit as property prices continue to rise.

The DIY couple won’t be borrowing to fund their renovation though. Instead, they’re going to use their savings (they didn’t qualify for HomeBuilder).

“We wanted to buy super-cheap and do the work ourselves,” Ms Margetts said. “We bought a two-bedroom, two-bathroom apartment 150 metres from the water for $300,000.”

Ms Margetts and Mr Burkin are staying in the apartment while they work on it, and hope to sell for more than $400,000 once the work is done.

So far, they have repainted walls and cornices, ripped up old carpet and added new flooring and are planning to renovate the apartment’s two bathrooms.

“The kitchen was 30 years old and had to be ripped out and we’ll be installing a brand new kitchen during the Easter break which is [flat packed] in 110 boxes.”

They plan to be finished by the end of the year, but some of the work has been slowed down as they struggle to find some of the materials they need.

Such is the boom in renovations, there is a wait on some of the more popular items used for home renovations.

Bunnings general manager of merchandise Tracey Lefebure told Domain demand was mostly being met across Australia, although timber was sometimes in short supply.

“Demand for some timber items sometimes exceeds supply at some stores and trade centres, however, our suppliers are supporting us with fresh stock to help meet demand,” Ms Lefebure said.

While Master Builders Australia has welcomed the boom in renovations, the expected last-minute rush of applications over the next few weeks could mean some builders are stretched to their limits in keeping up with demand in the short-term.

“Based on the experience of HomeBuilder mark I, there may be a rush of HomeBuilder mark II contracts signed closer to the expiration period at the end of March,” MBA’s chief executive, Denita Wawn said. 

“We are not seeking an extension of the application deadline, however we are keeping an eye on supply constraints and their impact on commencement and whether a policy lever is required to assist.”