Renovation loans over $150k surge as Homebuilder grant lifts development

Renovation loans over $150k surge as Homebuilder grant lifts development

Loans for renovations over the $150,000 threshold of the government’s Homebuilder grant have experienced a surge, loan data reveals.

The average kitchen renovation in the recent financial year cost $20,750. Renovating the bathroom cost $16,250. A double carport? $32,450.

So a $150,000 renovation -- the minimum for people to be eligible for the $25,000 grant under the government’s HomeBuilder scheme -- can go a long way for those who can still afford it during a pandemic.

And according to home loan data provided by Suncorp bank exclusively to RateCity, the incentive appears to be working.

Of the loans issued for renovations during the last financial year, 31 per cent were over $150,000.

That’s a rise of more than 10 per cent compared to the loans issued a year before.

Average renovation passes $60k

The increase in large loans for renovations lifted the general average. Renovation loans over the financial year ending in 2020 averaged $63,188, a rise of 24 per cent compared to the year before.

The work is keeping construction companies busy, Mitch Picklington said, director of Mitcon Build in Queensland. 

“We have been inundated with requests to quote for different jobs around Brisbane at the moment, whether it’s renovating one room in the house or making plans for a larger scale renovation to utilise the government’s Home Builder scheme,” Mr Picklington said.

“We’ve seen a surge in people wanting to expand their current living areas with an extension and refresh their outdoor entertainment area by adding a pergola, deck or even swimming pool.”

Figures from the Australian Bureau of Statistics (ABS) indicate there has been a lift in the number of freestanding homes approved over the last two months in some states, but the group representing the construction industry has said the impact in others hasn’t been felt due to red tape slowing the process down..

RateCity asked the office of Michael Sukkar, the minister for housing and assistant treasurer, questions on the number of Homebuilder applications submitted, and the value of grants paid out. They did not offer a response.

Competitive renovation loans 

Interest rates on some of the most competitive loans used for renovations are hovering around the 2 to 3 per cent mark. These include ‘construction’ and ‘line of credit’ loans.

Construction loans are taken out for the purpose of building or substantially renovating a home. Funds are released in stages as development milestones are reached.

Bank First’s ‘premier package’ tops the list of 69 construction loans in the RateCity database, at the time of writing, offering an advertised rate of 1.99 per cent and a comparison rate of 3.1 per cent. It’s followed closely by products offered by Community First Credit Union and Hume Bank.

Line of credit loans, also known as equity loans, can also be used for renovations. They’re commonly compared to giant credit cards because they offer an amount of approved credit that can be withdrawn, but they differ by being secured against a property. 

Homeloans.com.au's ‘low rate line of credit home loan’ is currently topping the list of 54 line of credit loans in the RateCity database, with an advertised interest rate of 2.74 per cent. It’s followed closely by BankSA and St George bank, which both offer interest rates of 2.89 per cent. 

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More houses have been given approval to be built

There’s two trends evident in the building approval data recently released by the ABS: a drop in the number of apartments approved for development, and a rise in the number of freestanding houses. 

House approvals increased by 4.8 per cent in August, coming off an earlier increase in July of 8.6 per cent. Meanwhile, apartment development numbers remain weak -- near an eight year low. 

Building approvals were generally up in WA, Queensland and in Victoria, while other parts of the country experienced drops.

The Housing Industry Association (HIA) said the states with a rise in development approvals were experiencing the byproduct of the Homebuilder scheme.

“The impact of HomeBuilder is now emerging ... and there is a significant divergence between the outlook for detached and multi-unit dwellings,” Angela Lillicrap said, an economist at HIA.

“Other regions are yet to see the pickup in activity.

“This reflects a range of factors including, longer processing times with local councils and delays in the finalisation of building plans between the customer and builder, and a stronger pipeline of existing work.”

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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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Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

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.

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.

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Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

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An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

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