Aussie homeowners choose to renovate rather than sell

This is due to rising interest rates affecting affordability

Aussie homeowners choose to renovate rather than sell


By Ryan Johnson

New research by broker network Aussie Home Loans has found 54% of property owners are choosing to renovate rather than sell this spring because they can’t afford to buy a new home.

The study of 1,000 Australian homeowners revealed rising interest rates are the leading cause of the renovation trend, with 73% of respondents saying successive rate rises were the main reason they were investing in their existing property as opposed to trading up.

On the ground, two Aussie brokers have experienced the trend firsthand and have added value as their clients’ strategies pivot.

Why are Aussie borrowers renovating instead of selling?

A key trend found in the report was the different reasons why they were renovating.

More than a quarter of respondents (26%) said the push to renovate was because they needed a more modern or larger home but that they couldn’t afford to buy one, while 22% said their main driver was to increase the value of their home.

Aussie chief operating officer Sebastian Watkins (pictured above left) said the research illustrated the wide-ranging impacts of rising interest rates on the property market and the squeeze Australian families are facing.

“We know spring is typically selling season in Australia, but these next few months may look a little different due to changing economic circumstances and household budgets,” Watkins said.

“For generations, home ownership in Australia was a given for most families, those days seem gone. Now, we’re seeing a larger number of households remain in their existing homes for longer due to rising house prices and lending costs, even though that home may not meet all their needs.

Kim Horan (pictured above centre), from Aussie St Mary’s franchise, said she currently has several clients who have decided to renovate instead of selling and buying.

“There are several factors that contribute to their decision-making process and saving on the cost of selling and stamp duty can make a big difference,” Horan said.  “As long as the property can become what they need once the renovation is complete, it can be a cost-effective way to upgrade their home without selling up.”

Aussie mobile broker Allan Haddad (pictured above right) said he understood why his clients chose to renovate rather than “go through the pain” of selling and buying again in the same market.

“As we know, there are a number of ‘sunk’ costs when purchasing and selling a property, including agents fees and stamp duty.”

How are Aussie borrowers financing these renovations?

While rising interest rates are largely to blame for homeowners not selling, another trend discussed in the report explored how this struggling cohort would finance these renovations.

The report found that one-quarter of Australian homeowners (25%) said they would be refinancing their loan and using the existing equity in their property to fund the home improvements.

Of those, 17% said using their equity would push their new Loan to Value Ratio (LVR) to 80-85%, while a concerning 13.5% will see their new LVR sit above 90%.

Watkins said while these changing circumstances present new challenges for homeowners, it is reassuring that Aussies understand the potential and value in their existing assets.

“The research shows that many households are willing to push into a higher LVR bracket, or even pay Lenders Mortgage Insurance to achieve their renovation goals, while nearly a third of others are using savings from their offset account,” Watkins said.

“We know the more savings that sit in that offset account, the less of an impact higher rates have on the monthly mortgage, showing many Australians are willing to stretch themselves financially, to achieve a home where they can stay put longer.”

Given that 83% of respondents said higher rates have impacted the amount they could spend on improving their home, the recent cost of living squeeze is likely to exacerbate this trend.

A total of 42% said they even had put off any major works on their property over the year, due to the rising costs.

“For homeowners who are seeking to renovate or sell, we encourage them to reach out to a mortgage broker early, to discuss the right avenue to finance their goals,” Watkins said.

How can mortgage brokers add value?

With homeowners looking to reinvest back into their properties and hopefully raise their home’s valuation, mortgage brokers are primed to add value and support them in this journey.

Haddad said he had added value by providing customers property and suburb reports to “paint a picture” so clients gained an understanding of what their individual suburb is doing within this current economic climate.

“I believe the data provided on these RPData reports are invaluable and can assist clients with deciding on whether or not they wish to manufacture equity through renovations,” said Haddad, who is also a firefighter in his spare time.

Horan said that brokers could help clients determine the best options by comparing costs of moving versus renovating, presenting relevant scenarios, and clarifying the impact on their existing home loan commitments.

“This is certainly a more detailed service then a general lender can provide, and it really helps customers find the most competitive lending solution available based on their specific circumstances,” Horan said.

What about the problems with the construction industry?

While borrowers may be solving the problem of higher interest rates by investing in their property assets, the question remains whether they are entering into another one.

The construction industry has been struggling for a while now, with supply chain issues, rising costs, and labour shortages savaging the industry and slowing build times.

However, Horan said the situation was improving.

“Customers are not necessarily finding barriers with supply right now, that has improved,” Horan said. “The issues are more around availability of trades coupled with good trades quoting higher because they have so much work now that they don’t need to be as competitive.”

Haddad said he had noticed a slowdown of construction processes.

“It’s always good for clients to get in touch with brokers who have actually gone through this process themselves, such as renovating or building, so they can provide some foundational do’s and don’ts  based on personal experiences,” Haddad said.

“Of course, the final decision will always be made by the client- but our recommendations can go a long way.”

The survey of 1,000 homeowners conducted from August 17, 2023, is weighted and is representative of all Australian homeowners.

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