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When equity opportunity knocks

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As the industry murmurings around renovation and regional investment grow into a roar, the key to getting on board may just lie in leveraging today’s low interest rates to borrow or refinance.

Buying and/or renovating property remains one of Australia’s preferred investment strategies, and it’s easy to see why. 

Whether you’re buying a first home, dream home, or a second place to rent out; or you’re ready to start on home improvements or a fix-up-and-flip project, an informed investment in real estate has the capacity to deliver good returns through rental income or capital growth. 

The great news is that in the current climate of low interest rates and booming property values, refinancing to invest, or accessing a personal loan to renovate can be a smart approach to long-term wealth generation.

What’s happening across the market

It’s been a bumpy ride for Australia’s property markets over the past 18 months. Last year, following the onset of COVID-19, HIA reported that the value of investor loans slid to a 17-year low. However, the federal government’s HomeBuilder scheme helped shore up the new homes and renovations market. 

This year, the story couldn’t be more different. Despite widespread lockdowns, supply chain issues and skills shortages, the housing market has roared back to life. ‘When the HomeBuilder program ended in March 2021, many predicted that new home sales would be on the decline, but the sales until the end of July were consistent with the average of recent years,’ says HIA Chief Economist Tim Reardon. ‘This suggests that demand for detached housing is remaining solid, even without the government’s fiscal stimulus.’

By the end of July, the value of investor loans had surged to $8.1 billion, the highest level since 2017, and national dwelling prices, fuelled by high demand and low interest rates, have grown an astonishing 22.1 per cent over the past 12 months. 

Gabrielle Chariton


Contributor to Housing

Are these escalating prices bad news for would-be investors or renovators? 

‘Many Australians may have put spending on property into the too-hard basket, assuming it’s beyond their financial reach right now,’ says Bill Tsouvalas, founder and CEO of Savvy, one of Australia's leading financial institutions. ‘However, the opposite is often true, because a rising market translates into rising equity which can be leveraged to access finance. And with low interest rates forecast to stay in place until at least late next year, securing a personal loan now could be a cost-effective way to pay for a renovation.’ 

Investing? Go regional

While real estate buy-sell activity is hitting record highs across Australia, the real buzz is happening in the regional markets. Traditionally regarded as a less-sound investment than metro property, it seems that with COVID lockdowns and work-from-home, suddenly everybody wants a slice of country life. 

‘More than 60,000 people departed Sydney and Melbourne to other parts of the country in the 12 months to March 2021,’ Tim Reardon says. Based on this population shift, growth across the combined regional market in the 12 months to August clocked in at a massive 21.6 per cent, with coastal areas and towns convenient to capital cities leading the charge. What’s unique about these markets right now is that even though they are robust and growing, they remain more affordable than capital cities – CoreLogic cites a $247,400 difference between the median value of capital city and regional dwellings – which makes them a very attractive buying proposition.

‘Investing in regional homes is now more attractive due to higher rental yields, low returns from deposits, and a narrowing gap between investor mortgages and homeowner mortgages,’ says Bill Tsouvalas. ‘Refinancing to capitalise on this opportunity may be a smart idea. If you have enough equity in your home, you can use that to provide the deposit for a second home or investment property, without dipping into your savings.’ 
Renovation expectations
There’s no denying that in 2021, Australia is the renovation nation, with Tim Reardon describing this as a ‘record year’ for the renovations market. 

‘The value of loans for alterations and additions in the three months to March 2021 was 54.5 per cent higher than the same time last year,’ he says. ‘We expect that this trend will continue for a number of years due to the elevated savings and the increased time people are spending at home.’ 

As Housing Online reported last year, this activity has been driven partly by HomeBuilder, but also by a re-channelling of funds typically used for travelling or dining. The bulk of reno activity is focused around updating kitchens into larger multipurpose, lifestyle-oriented spaces, and upscaling outmoded bathrooms – which rose in expenditure 10.7 per cent higher than the average cost of between $20,000 – $26,000, listed the year prior as per the latest HIA K&B Report, though can easily surpass this price-range when a higher-end full renovation is being considered. 

While renovations are often about lifestyle, they can also be a smart investment strategy, Bill Tsouvalas says. ‘Renovations can add significant value to a home – particularly if the works involve adding square meterage or extra bathrooms and bedrooms.’ The key to renovating for profit, he adds, is to spend strategically and ensure that the level of finish and fit-out aligns with buyer expectations in your area. 

Refinancing your existing home loan can open up your options for funding a home makeover. ‘In some cases, if your finance and renovation are planned and managed well, you could cover the building costs and still retain significant equity,’ Bill says. ‘However, not everyone is in a position to refinance. For example, any loan younger than two years can't or shouldn't be refinanced. The upside is that with strong growth in valuations, personal loans for renovations can make financial sense sooner than later.

Financial flexibility

To help you navigate the borrowing process and find a loan that will ultimately help you achieve your property investment goals, the Australian Government’s MoneySmart website recommends enlisting the services of a mortgage broker to access a loan solution that’s correctly structured to maximise the returns on your investment or reno strategy. 

Bill Tsouvalas says accredited mortgage consultants can help homeowners make informed decisions about the most cost-effective way to access finance. ‘They’ll assess your current situation, for example how old your existing loan is, how much interest you’re currently paying, and how much equity you may have built up in your home, before advising you on the best way forward.’ 

If you’re seeking finance for your next home purchase or extension, Savvy brokers have access to hundreds of loan products from over 25 of Australia’s top lenders, and can quickly compare the various options, utilising features like interest-only repayments and equity lines of credit to free up capital and create sustainable solutions for different investor strategies.

‘Mortgage brokers work with a broader spectrum of home loan products and features than a borrower can access from a bank or single lender,’ Bill says. ‘That allows them to cherry-pick the product that will best suit each client’s individual needs, goals and financial situation.’ 

Savvy solutions

There are several factors that make personal lending a smart option for financing home improvements. 
‘Home improvement loans have terms of between one and five years, making them better matched to a short-term goal like home refurbishment than a mortgage,’ explains Savvy CEO Bill Tsouvalas. 

‘You borrow a fixed sum over a fixed period, and the interest rate remains set for the entire loan. They’re quicker to arrange than a home loan because there’s no need for a valuation, and you can use the loan to pay for all manner of renovations, labour costs, and materials.’

A Savvy consultant can help you decide on the best way to secure funds for your next reno or investment project. And as well as offering advice, they can manage the entire application process on your behalf. It’s a simple, fuss-free way to access the finance you need.

For more information on Savvy and how they can help expand your opportunities through refinancing go to: www.savvy.com.au
Brand promotion: This article was compiled with contributions from Savvy.