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Renovation Nation: 37% of Aussie homeowners are renovating this year

Renovation Nation: 37% of Aussie homeowners are renovating this year

Australia has become a nation of renovators according to new research which shows more than one in three homeowners are improving their homes this year.

A new RateCity.com.au survey of over 1000 Australians found that of the people who owned a property, 37 per cent of respondents were altering or renovating their homes in 2021.

Among those renovating, the most popular amount to spend was between $5,000 and $25,000.

The survey also found that 22 per cent of people who had been saving for a holiday in the last year, but could not travel because of COVID, are instead using that money on a renovation.

Why are so many Australians renovating?

RateCity.com.au research director, Sally Tindall, said lifestyle changes brought on by COVID has been a driving force for many Australians to renovate.

“Lockdown living has seen many families save. In fact, according to APRA, there’s $124 billion more in the bank from households compared to a year ago at the start of COVID,” she said.

“Expensive overseas holidays have been delayed or cancelled, helping people to save more money. Our survey also found that 22 per cent of people who were saving for a holiday in the last year are re-directing that money towards a renovation.

“As well as tapping into savings, more Australians are also taking out loans to pay for their renovations,” she said.

In the last year, owner-occupier homeowners have taken out a total of $3.12 billion in loans for alterations, additions and repairs, according to the latest seasonally adjusted ABS data.

“Working from home has made many people realise they need larger, more functional homes.

“While moving to a bigger house can often be an easy fix for people looking to upgrade, a lack of stock in a booming property market has made this option financially unviable for many families.

“Many people are finding it is more economical to renovate their own home than to buy and sell, particularly when factoring in costs such as stamp duty,” she said.

Options to finance a renovation

    • Savings: Tapping into existing savings can be a low risk, straight forward option.
    • Offset/redraw: If you are ahead on your mortgage repayments you could pull this money out. However, be aware the longer you take to put that money back in, the more it will cost you in the long run.
    • Withdrawing equity from your home: If your home has increased in value, you might be able to pull out equity by refinancing. While the interest rate on a refinancing deal is likely to be lower than a personal loan, if you pay that money back over 30 years it could end up costing you more in the long run.
    • Construction loan: For large renovations or rebuilds a construction loan can be added on top of your existing home loan. These loans can be interest-only for a period of time before they revert to principal and interest.
    • Personal loan: Typically, you can borrow up to $50,000 for a personal loan to fund renovations and it can be either secured or unsecured. Interest rates have a huge range and will often depend on your credit history. If you you’re looking for ‘green’ upgrades, there are ultra-low rate options available, including 0.99% from CBA. 

The cost of taking $50,000 from your home loan

RateCity.com.au has crunched the numbers on how much extra the average customer with a $500,000 home loan balance and $50,000 in their offset would pay in interest if they used their offset money to renovate their house.

If they put the $50,000 back into the offset account in equal instalments over 5 years they would pay an additional $6,533 in interest, compared to if they didn’t withdraw the money.

However, if they put this money back over 10 years, instead of 5, the extra interest paid would rise to $12,605.

ScenariosEstimated total interest paid over 25 yrsExtra interest paid by taking out $50,000
Leaving $50K in offset account for remainder of loan

$158,159

Taking $50K out of offset and returning the money over 5 yrs

$164,691

$6,533

Taking $50K out of offset and returning the money over 10 yrs

$170,764

$12,605

Source: RateCity.com.au Assumes $500,000, 25 years remaining on home loan, paying principal and interest on the RBA average existing customer variable rate of 2.95% and that the first instalment back into the offset account happens on day 1. Assumes monthly repayments and interest rates remain the same. Calculations are estimates only.

Tips for homeowner renovating

  • Factor in a buffer as budget blowouts are common.
  • If you take out a loan or use your offset/redraw repay the money as quickly as possible.
  • Compare notes and quotes by joining renovating forums and speaking to friends.
  • Get multiple quotes from tradies and suppliers.

RateCity.com.au research director, Sally Tindall said: “Factor in a buffer because when it comes to renovations, blow outs are commonplace.”

“If you are getting a loan to fund your renovations, work out how much extra you will need to pay both in your monthly repayments but also over the life of the loan,” she said.

If you are taking money out of your offset account or redraw facility, try and put that money back as quickly as you can. The longer it takes to repay the money, the more you’ll pay in interest.

Joining a renovating forum or talking to friends who have recently done up their house can help you find suppliers and tradies,” she said

How much people who are renovating this year are planning to spend

ValuePercent
Less than $5,00022%
$5,000 - $25,00040%
$25,000 - $50,00015%
$50,000 - $100,00010%
More than $100,00013%

Source: RateCity.com.au survey

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

Can I borrow extra on my mortgage for furniture?

Yes, you may be able to borrow extra on your mortgage for furniture. This may be done by considering a home equity loan. A home equity loan may allow you to access the equity in your mortgage for furniture via:

  • A line of credit – A pre-approved credit limit based on your equity.
  • A lump sum payment – Like a persona loan, with equity in your home loan used as security.

If you want to avoid borrowing more money, consider accessing cash deposited into your offset account or drawing down on extra repayments with a redraw facility to fund furniture purchases.

Is a home equity loan secured or unsecured?

Home equity is the difference between its current market price and the outstanding balance on the mortgage loan. The amount you can borrow against the equity in your property is known as a home equity loan.

A home equity loan is secured against your property. It means the lender can recoup your property if you default on the repayments. A secured home equity loan is available at a competitive rate of interest and may be repaid over the long-term. Although a home equity loan is secured, lenders will assess your income, expenses, and other liabilities before approving your application. You’ll also want  a good credit score to qualify for a home equity loan. 

How fast can you get a home equity loan?

Completing an application for a home equity loan may only take 20 to 30 minutes. It may take a lender anywhere from a day to a few weeks to process and approve your application. This may be affected by your financial situation, your level of equity, and whether or not your lender needs to organise an in-persona valuation of the property.

 Before you can apply for a home equity loan, you’ll need to build up some equity in your property. The more money you can put towards extra repayments to reduce your home loan principal, the faster you can increase your equity. Also, if property values in your area increase, this may help deliver an instant equity increase once your property has been valued.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What is a building in course of erection loan?

Also known as a construction home loan, a building in course of erection (BICOE) loan loan allows you to draw down funds as a building project advances in order to pay the builders. This option is available on selected variable rate loans.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is a construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

How does an offset account work?

An offset account functions as a transaction account that is linked to your home loan. The balance of this account is offset daily against the loan amount and reduces the amount of principal that you pay interest on.

By using an offset account it’s possible to reduce the length of your loan and the total amount of interest payed by thousands of dollars. 

Example: If you have a mortgage of $500,000 but holding an offset account with $50,000, you will only pay interest on $450,000 rather then $500,000.

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.