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. 

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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