Is now the time to renovate your home?

Renovating a property could potentially greatly improve your lifestyle at home, or increase the value of your investment. But when is the best time to consider undertaking a renovation project, and are there any risks or hazards to avoid?

It’s not always easy to know when conditions are ideal for a home renovation. For example, during the COVID-19 pandemic, a combination of record-low interest rates and the introduction of government support such as the HomeBuilder grants led to record numbers of Australians building and renovating homes.

However, just a few years later, rising interest rates, falling home values, supply chain issues and shortages of materials and labour led to many building and renovation projects being stalled or cancelled, and even the collapse of some construction firms.

The best time to renovate your home may vary on a case-by-case basis. You may need to consider your home, your finances, and your personal goals to work out if renovating is the best strategy for you right now.

Will a renovation improve your lifestyle?

A renovation can sometimes seem like a necessity. If the bathroom or kitchen is falling apart, or if a small change could make a big difference to how you use these areas of the home, you may already have a renovation in mind. And if your family is growing or your lifestyle is changing, adding more rooms or even an extra storey to a property could be an alternative to pulling up stakes in your local community and moving house.

It's important to remember that renovation projects can also be disruptive around the house, especially the bigger builds. This could affect your life at home, making once everyday tasks more stressful until the job is completed. And since renovation projects can easily run over time or over budget, your home life could be put out for longer than you’d planned. 

How can a renovation affect your property’s value?

Renovating a property can potentially increase its value. For example, according to Choice, a bathroom renovation alone could mean returns of $4 for every $1 spent added to the value of your home.

You can use a free property report from RateCity to get your home’s current estimated value. This could prove to be a useful benchmark when budgeting for your renovation, and help you avoid overcapitalising, which is where you spend more on a renovation project than the value it adds to your home.

Can you use your home’s equity to renovate?

Your equity in a property is how much of its current value you own outright, and doesn’t have a mortgage owing on it. You can estimate your own equity by taking your home’s current value estimate and subtracting your remaining mortgage principal.

You may be able to refinance your home loan and use your equity to help pay for a renovation, whether by extending your mortgage, applying for a home equity loan, or a flexible line of credit.

Remember that your lender will likely require you to keep at least 20% of your home’s value “unencumbered” by a mortgage or other finance, so your usable equity may only be 80% of your home’s value minus your remaining mortgage principal. When you apply to access your equity, the lender may organise a professional valuation of your property to confirm your level of equity before they’ll approve your application.

If you’ve only bought your property recently, and/or if it’s located in an area where property values haven’t risen significantly (many areas around Australia have seen dwelling values plateau or even decline), you may not have enough equity available in your property to refinance for a renovation.

How can you borrow money to pay for a renovation?

As well as using the equity in your home, there are other credit options that may be useful when paying for a renovation, such as:

• Ahome improvement personal loan lets you set your budget in advance, receive the money as a lump sum, and pay it back plus interest in instalments over time.
• Acredit card could let you borrow and repay money you require for your renovation at a time that suits you, though the interest charges could be high if it’s not repaid in a timely fashion.
• Aconstruction loan is a different type of home loan that could help you finance major renovation and building projects. Rather than being paid as a lump sum, you can draw down money from the loan to pay for each stage of construction as it progresses, which could help you save some money on interest charges.

Banks and other lenders will consider a range of factors when you apply for a credit product, including but not limited to your credit score, your income and expenses, and any assets you may be able to use as collateral to secure the loan. Depending on your current financial situation, not every option may be appropriate for your needs.

Could you get a green loan?

If you’re renovating your home to add environmentally friendly features, such as solar panels or an EV charger, you may be able to finance this project with a green loan, such as a green home loan or green personal loan. These financial products work a lot like more typical examples, except they often have lower interest rates and more specific eligibility criteria. This could potentially help you make your renovation project more affordable.

Compare personal loans for home improvement

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