In the current environment, with interest rate hikes, inflation control measures, power and water restrictions, homeowners are becoming more interested in learning the details about how their homes can be renovated by incorporating new cost-effective measures to sustain or improve their living environment.
WATCH : Finding the funds to renovate.
After the Covid-19 lockdowns, there was an increased emphasis on home through the addition of an office, home gym, or granny flat for additional income. This is to create more privacy, expand the patio or entertainment area, and add a swimming pool, tech or alternative power and water sources.
Another consideration for renovation has been property values. For many who chose to down- or upscale, the realisation that the home needs updating to become more appealing to a broader market has been emphasised. This means looking at the potential of architectural and interior design ranging from changing cabinets, doors, and light fixtures, for example, to removing walls for more open-plan living.
There are also many buyers who see the potential for renovation in a for-sale property. It may be that a home is in a good area but hasn’t been maintained or is ideal but for one or two reasons. They will buy such a home with the intention of fulfilling a vision of how they will use the space to suit their individual and family lifestyles.
Julian Pick, National Manager Credit Lending CVM Home Loans Value Analytics at Absa, explains that there are a number of ways to source finance for renovations. “Of course, a client can consider tapping into any savings they may have, but if that is not an option, they can apply for a further advance or a re-advance, bearing in mind the magnitude of the building renovation will determine how much funding will be available.
“If Absa clients have placed any additional funds they have had, such as bonuses, dividend and investment payouts, inheritances etc., and these have been paid into the mortgage account, the home loan account morphs into a Flexi Reserve, which they can access for use in a renovation.”
Pick confirms that certain companies also allow their employees to borrow against their pension funds, and stokvels also present opportunities to raise funds for renovations. There are also FLISP grants that can be used for projects.
However, all of these options including bank loans, are dependent on the homeowner’s financial standing. If, for example, the client has a portfolio that includes annuities, unit trusts, savings and investment accounts, this will indicate they are committed towards their future financial well-being. Regardless, the first point of check in the application for renovation finance is whether the client is overburdened with financial obligations.
“The risk profile of a client is the starting point in the application process, such as credit checks, but in that process is the consideration of whether the client is over-capitalising on the property for the area in which it is located. By this, I mean are they spending more on the renovation than what they will be able to recoup should they decide to sell in the future?” says Pick.
“Another aspect of being able to access renovation finance is dependent on the type of building materials being used, which need to be approved by the necessary municipal authorities. Asbestos, for example, is not allowed. Building plans and zoning also require signoff by the authorities.”
The addition of solar and gas installations may be considered renovations and may qualify for finance, but they do not necessarily increase the value of a property, says Pick.
For those who are in the buyer’s market and want to buy a fixer-upper, they do not have to wait to occupy or own the premises before applying for finance to renovate. “A potential homeowner can apply for additional renovation finance at the same time as applying for the purchase of the property. In this case, their home loan application will include the additional funds. Once the property is transferred into the buyer’s name, they can also apply for renovation finance.
When applying for finance, specifically for renovation, the bank requires quotations from numerous sources. Such documentation includes approved building plans, the architect’s and land surveyor’s report, and the usual bank application forms that may require other details. Before applying for renovation finance, it is best to consult with an Absa bank representative that can provide guidance, which will help to speed up the application process. If a re-advance is applied for, such as with a Flexi Account, the funds are usually available almost immediately, says Pick, “but in the case of needing to apply for a further bond, funds can only be accessed once the new bond is registered.”
To ensure that a credit application for renovation is not going to be rejected, clients should do their homework and budget to afford the future additional financial obligation. This should include doing a credit check on themselves at the credit bureau, having enough savings for emergencies, accounting for future interest rate hikes, and consistently meeting financial commitments, which include possible future scenarios, such as school fee increases, rates and taxes. Ultimately a renovation must have value, and if not for the owner’s immediate benefit, then at least for the future sale.
Writer : Kerry Dimmer
