Is now the time to renovate?

Construction activity is booming as international travel bans cause many households to redirect their savings towards home improvements. Add in record low borrowing rates, government grants, like HomeBuilder, and the need for more space as people work from home – and conditions are ripe for renovating.

So, is now the time to take the plunge?

Even as Australia bounces back from its first recession in almost three decades, the economic scars remain. Unemployment is still high, government stimulus is being wound back, and it’s unclear exactly when international borders will reopen.

Before you start swinging a hammer at your walls you should consider your current finances, job security, and ultimately what you hope to achieve from the renovation.

Why renovate?

It’s important to remember a renovation is a long-term investment; your decisions will have important consequences down the line.

Consider whether you’re renovating to sell or renovating your dream house.

If you don’t plan on selling your property straight away, you are making a lifestyle investment rather than an investment for a profit. This means that instead of buying the cheapest bathroom taps or painting in neutral colours that potential buyers like, it makes more sense to splurge on what you really love.

Be realistic about your budget

Overspending is a real concern for renovators and is very easy to do. That’s why a budget is vital in your renovation planning.

Make a list of all your needs & wants, from your doorknobs to how much you are going to pay for your trades. It’s always a good idea to have a buffer in your budget.

Ultimately, you should only renovate when you can afford it. Even with interest rates at record lows, whatever you borrow you’ll have to pay back. Having said that, a good reno can substantially increase your home’s value.

If you already have equity in your property, you may be able to refinance your loan for renovations.

Speak to a Mortgage Choice broker about what financing options may be right for you.

Other incentives

As the end date for the government’s HomeBuilder scheme fast approaches, industry groups are anticipating a rush of renovation applications in the coming weeks.

The federal government’s HomeBuilder scheme is scheduled to end this month.

The scheme was introduced last year to boost construction activity during the economic downturn, initially offering a $25,000 grant to eligible applicants. The program was extended for an additional three months at a lower rate of $15,000, which is due to expire at the end of March. Prime Minister Scott Morrison recently said the government won’t be extending it again.

The grant is available for owner-occupiers who are building a new home, or substantially renovating an existing one. There are several terms and conditions, such as a minimum project spend, the value of the property cannot exceed a certain threshold, and the work must commence within six months of the contract being signed.

What it means for lending

Lending data by the Australian Bureau of Statistics shows loan commitments for new homes and renovations have surged since HomeBuilder was introduced, and economists at the Commonwealth Bank expect that to continue in the months ahead.

“Restrictions and border closures have meant that people have significantly reduced their spending on holidays and some services. Spending has shifted towards goods including spending on the home,” said CBA Senior Economist, Kristina Clifton.

In January, the value of lending for home renovations was 47.4% higher than the same month last year.

“Renovation activity is booming and our internal lending data suggests that dwelling investment will rise further over H1 21,” said Ms Clifton.

“We are forecasting strong growth in renovations until around mid 2021 supported by the HomeBuilder program. We expect renovation activity to ease thereafter.”