Fraction of 2019 renovations meet HomeBuilder spending threshold, survey finds

Fraction of 2019 renovations meet HomeBuilder spending threshold, survey finds

Only ten per cent of renovations cost more than $150,000 to complete last year, according to a new survey, providing some insight into the number of renovations that may be eligible for the government’s $680 million HomeBuilder scheme.

The Houzz and Home renovation trends survey, of 4500 people fielded before the COVID-19 pandemic, revealed the typical home renovation project cost $20,000, and generally consisted of three rooms.

It’s not known how the coronavirus will impact renovations

Nearly one in two (48 per cent) of homeowners planned on starting or continuing a renovation this year, but the data -- captured in February and March -- precedes the disruptive reality brought about by the pandemic. 

“Subsequent surveys have shown that four-in-five homeowners who were in the midst of a
project at the start of the pandemic were able to continue with renovations,” said Marine Sargsyan, a senior economist at Houzz. 

“Some homeowners have opted to delay certain elective renovations due to implications related to social contact, labour and material availability and personal discretionary spending.”

Ms Sargsyan said the projects could be put on the backburner until they can be carried out, “setting the stage for a renewed burst of activity following the pandemic”.

A $25,000 HomeBuilder grant, but there’s a catch

The Federal Government has launched a $680 million grant to help “the residential construction market by encouraging … new home builds and renovations”. A $25,000 grant may be available to eligible owner occupiers looking to build a new home or substantially renovate the existing home before the end of this year.

But there are a couple of catches, including that the renovation will have to be valued between $150,000 and $750,000.

Houzz and Home’s survey of 4500 people found just ten per cent spent $150,000 or more on their renovation last year.

Other criteria must be met as well to qualify for the HomeBuilder grant. This includes:

  • Individuals earning less than $125,000 per year, and couples earning less than $200,000 combined
  • The building of a new home cannot be on land worth more than $750,000
  • The value of a residential home being renovated can’t be more than $1.5m before construction

Securing $150,000 for a renovation

There are a few ways to ​help secure the funds for a renovation valued at $150,000 or more. 

The most obvious is saving the money, whether it is being banked in a savings account, or accumulating in an offset account of -- what is most commonly -- a variable rate mortgage.

Using the money repaid in an offset account could increase the balance owing on a loan, and may result in more interest being charged as it is being calculated on a larger sum.

Some loans have a redraw facility and this works in a similar way to an offset account. Extra repayments made to a loan can be redrawn to finance a renovation, but this too forgoes reduced interest charges. 

The final option is to shop around for another mortgage and refinance. It might be possible to find a mortgage with a cheaper interest rate and options that are more flexible, but keep in mind breaking a mortgage often results in exit fees.

What did people renovate and how much did it cost?

The most costly renovations were typically undertaken on kitchens, according to Houzz and Home’s survey, and cost about $15,000. They were followed by renovations to master bathrooms ($13,000) and to guest bathrooms ($10,000).

Four out of five renovations were paid by people dipping into their savings, while credit cards -- were used in one-in-five cases -- mostly by Gen Xers; people aged 41 to 55 years old.

Prep times generally took twice as long as the renovations themselves, the survey found. Construction time on average took from 2.4 to 5.7 months.

Professionals were commissioned to complete the renovations in 89 per cent of cases. Most commonly, these were electricians (60 per cent) and plumbers (45 per cent).

Who was spending?

Baby boomers, aged from 55 to 74 years old, accounted for nearly half -- 45 per cent -- of all of the renovations in 2019. About 53 per cent of them intended to live in their homes for a decade.

“Project scope and spend have remained stable and we’re seeing Baby Boomers continue to bring consistency to the market as they pursue projects that will allow them to age in place,” said economist Sargsyan.

“Following significant growth in home renovation activity over the past few years, we’re seeing
the market settle somewhat in terms of activity.”

Baby Boomers and Gen Xers generally made the decision to start a home renovation project because they finally had the time (at 39 and 30 per cent, respectively) and the money (at 42 and 39 per cent, respectively).

Millennials, aged from 23 to 38, chose to renovate in 38 per cent of cases because they wanted to customise a home they recently bought.

Related

How Australians are spending their COVID-19 stimulus payments: ABS
Renovate or sell? The big question
Owner builder home loans

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What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

  • Costs are calculated on the current variable rate however they could change in the future.
  • Loans are assumed to be principal and interest
  • Fixed-rate loans with terms greater than five years are still assessed on a five-year basis, so 10-year fixed loans are assessed as being only five years’ long.
  • Break costs are not included.

Mortgage Calculator, Repayment Type

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What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.