A sharp rise in renovation finance is giving mortgage brokers new angles to talk to clients about borrowing capacity and property strategy, with granny flats emerging as a key theme.
NAB data show renovation loans jumped 21% in 2025, outpacing growth in the previous two years, as more Australians chose to re‑work existing homes rather than upgrade to a larger property.
Much of that demand is being driven by secondary dwellings. Many homeowners are using renovation loans to add self‑contained granny flats, aiming to create extra space for family, tap rental income, or unlock more value from the land they already own.
Searches for “granny flat” are also climbing on property platforms, particularly in Sydney and Perth, while the Housing Industry Association expects granny flat builds to be around ten times higher by 2026 than four years earlier.
NAB executive Denton Pugh said the trend reflects a broader shift in attitudes to homeownership.
“People want their homes to work harder for them,” Pugh said in a media release. “With affordability still tough and rental demand rising, adding a secondary dwelling is becoming a smart, practical option. It gives homeowners extra space without stretching into a much bigger mortgage or taking on the cost of moving.”
For brokers, the shift opens conversations not only about renovation finance, but also about how additional rental income and future resale uplift can support first‑home buyers and property investors trying to make the numbers work.
Money.com.au data show investor loans now account for 39% of the mortgage market, with lending for improvements to existing dwellings up 15% in 2025, underscoring the tilt towards value‑add renovation strategies over new builds.
Pugh noted that “a well-designed granny flat is more than just four walls,” with families increasingly using them to keep ageing parents close or help adult children stay at home longer while they prepare to enter the market. Recent analysis of secondary dwelling rents shows typical two‑bedroom granny flats in Sydney and Melbourne earning around $350 to $600 a week, underscoring why more owners and property investors are treating them as serious yield assets rather than just extra family space.
NAB customer Haydan Andrews used the strategy to reshape his Newcastle block without over‑leveraging. After initial quotes showed a full knock‑down rebuild would “blow the budget massively”, he kept the original front house and built a granny flat at the rear, turning a single dwelling into two separate living spaces.
“Switching to a granny flat just made more sense. The numbers stacked up straight away - lower build cost, quicker turnaround, and rental demand in Newcastle is strong,” Andrews said.
For mortgage brokers, the granny flat trend is creating more demand for renovation finance and cash‑flow modelling as clients look to their backyards for growth.
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