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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How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

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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.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

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.

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

How long does NAB home loan approval take?

The time required to get your home loan from NAB approved can vary based on a number of factors involved in the application process. 

Once you have applied for a home loan, a NAB specialist will contact you within 24 hours over the phone to take down relevant information, including your total income, debts (existing loans, credit cards, etc.), assets (car, shares, etc.), and your monthly expenses (food, utility bills, etc.). Your lender might also ask for information related to the property you want to purchase, including the type of dwelling and preferred postcode.

NAB will then verify all your information and check your credit score, and if the details stack up, you should be given a conditional approval certificate. This certificate stipulates how much money NAB is willing to lend you and is typically valid for 90 days. 

Once you have your conditional approval, you can start browsing for properties that you like and that fit within the budget that NAB has provided. After you find a suitable property, you’ll need to give a copy of the signed deed to NAB, following which you should get full approval and access to the funds. This process can take up to 4-6 weeks. 

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

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.

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.