ME bank sees spike in renovation applications
Renovation loan applications have surged over the past six months, highlighting the dilemma of housing affordability, according to home loan lender ME.
Applications for cosmetic loans rose 48% while structural loan requests grew 25% between January and June.
The average amount borrowers requested for structural-related loans such as new builds was $400,000.
For cosmetic-related loans such as kitchen and bathroom renovations, the magic number was $40,000, it said.
ABS figures also confirm renovation lending has reached a new seven-year high:
Even CommSec chief economist Craig James said last month that in trend terms, loans for alterations and additions of homes (renovations) hit 7-year highs.
ME Head of Home Loans, Patrick Nolan said the trend towards renovation funding could be related to the high cost of housing.
“While many homeowners are still relocating, it is clear many are choosing to stay put to avoid the high house prices, and expenses such as stamp duty,” he said.
A majority of ME customers are using equity in their home to fund their renovations.
“Home equity is what’s left over when you subtract your home loan from your property’s current market value,” said Nolan.
“If you’ve owned your home for a number of years it’s likely you’ve racked up some impressive gains in home equity.”
Sydney property owners have the most equity in their homes, an average of $443,900 per property, compared to $276,845 in Melbourne and $203,813 in Canberra.
“If you’re ahead with loan repayments, you may be able to use redraw to dip into your equity,” adds Nolan.
“It’s a simple option but you are limited to the value of those additional repayments. Having a loan with an offset account can be an easier way to access equity.”
According to Nolan, renovation is a smart idea to use the equity in one’s home as it typically adds value to the property.
“In addition, quality home improvements can add to your lifestyle and save on the cost and hassle of relocating to a new home.”
He said it was a good idea to check your suburb before spending a bomb on a makeover.
“To avoid spending more on the renovation than the value it adds to your home, consider the market in your area to be sure your improvements will fit in. Adding a fourth bedroom for instance, can make sense if you live in a family-friendly suburb, less so if you’re in an area popular with young singles.
“Next, put your hard earned cash to work where it will deliver the greatest benefit. High quality kitchen and bathroom renovations almost always add value to a property because they have broad appeal. The same can’t be said of outdoor spas or swimming pools, which can be high maintenance and don’t always deliver a fiscal return.”