Financing your home renovation in NZ

Committing to a home renovation can be one of the biggest decisions you make, outside of actually buying your home to begin with. Although renovations come in all shapes and sizes, more costly renovations involving kitchens, bathrooms, reconfiguring living spaces, and adding another level to your home can quickly add up. Engineering reports, architect fees and council compliance costs can sometimes be unexpected costs that stretch your budget for what appeared to be a simple project at first.

Thankfully, there are many ways in which you can finance your home renovation.

Where to start?

A good starting point is to work out how much your renovation is going to cost. Depending on the scale of your renovation, you might need to engage a draughtsman or architect to create some initial drawings so you can accurately quote for the work. Make sure you seek multiple quotes from builders, glaziers, plumbers and electricians when you’re drawing up your budget – you’ll be amazed at the difference in costs across suppliers. Be realistic about the fixtures and fittings you want too. Again, there can be a huge difference between a standard bathroom vanity and a premium model with a quality, high spec finish.

Once you have a fair idea of costs, you can then plan whether you want to tackle the renovation in one hit, or stagger the work over an extended period of time to manage costs and your personal cashflow. There can be cost benefits to consider in completing all the work in one go – it depends if you can streamline the number of times you need your contractors onsite, or whether you want to live in the property while you’re project managing the renovation.

Without accurately costing the project, you may end up over capitalising with the work you’re doing, or running out of money part way through the project. To avoid these unnecessary pitfalls, work out your maximum spend for the project, add a small contingency percentage, and then start working through your finance options.

Keep reading to discover some of the benefits of renovating your home, average costs of typical renovations, and start to get your head around some of the finance options available.

What are the benefits of renovating your home?

The immediate benefits that come to mind, are an improvement to your current living conditions. Simple changes such as repainting or re-carpeting, adding a ventilation system, double glazing or replacing ineffective heating with a cost-efficient heat pump are all fairly simple ways to improve your quality of life, immediately.

Home improvements or home renovations often crop up as you move to a different stage in life. Growing your family can often mean creating another bedroom or living space, working from home can necessitate a need for a home office, or becoming an empty nester can be an opportunity to change the way your home is configured once fewer people are living in it permanently. 

We often rationalise making these renovations with the comfort of knowing that we’re adding capital value of one of our most important assets. The resale value of your renovated home is not be underestimated, as it can often be the way you can access finance to make the changes you want to make.

Home safety and home improvements that reduce your ongoing expenses are important benefits too. The peace of mind that comes with updating your electrical infrastructure, or replacing your roof to eliminate leaks are important improvements to prioritise, and are likely to save you money in the long run. Improving the energy efficiency of your home is important too – insulation, double glazing, updating hot water systems and your ventilation system can all help your home perform better, and lower your ongoing monthly expenses.

Owning a home does require a degree of needing to maintain your asset. 

What are average house renovation costs?

Working out the cost of your renovation can be a daunting task, but there are tools and professionals to help you navigate the process. There is plenty of help available to ensure you consider all you need to, before you kick off the renovation process.

Key factors to consider when working out your house renovation cost can include the size of your project and the type of work undertaken (bathroom renovations and kitchen renovations can be more costly than bedrooms or living rooms). The age of your house can come into play, as well as the difficulty of the job. Some elements of the project you might be able to do yourself, but for other parts, you’ll need to pay professionals to complete the work. Relining and repainting a bedroom is a very different project to a kitchen renovation, where you need to allow for whiteware, fixtures and fittings.  We had a play with a handy renovation calculator to work out the costs of some common renovation projects for you.

  1. Bathroom renovation

Based on a 10m2 project needing minor modifications (replace basin, shower and bath, update flooring and repaint), you need to allow for a project cost of $5,000 – $10,000.

  1. Kitchen renovation

Based on a 15m2 project needing major modifications (replacement and reconfiguration of major appliances, allowing for reconfiguration of gas, plumbing, electrical and all new fixtures and fittings). Costs can be anywhere from $20,000 – $95,000.

  1. Exterior renovation

Based on a 150m2 house, exterior painting of the walls, trim and roof can be anywhere between $27,000 and $50,000. The cost variance can depend on the condition of your exterior and how much ‘prep’ your painter will need to do.

  1. Addition of structures to your property

You may want to add a sleepout to your property to use as an extra living or sleeping space, or as an on site home office. A small 10m2 sleepout can cost you anywhere between $11,000 – 17,000. As of August 2020, anyone can build a sleep-out, carport or shed up to 30 square metres without needing council permission

Blowing your budget

Even the best planners and organisers can’t always anticipate the unexpected. Hidden costs can crop up even on the smallest of projects – rotten flooring in older bathrooms, structural issues or poor workmanship from a previous renovation can all add to your total project costs. It is always prudent to allow a contingency in your project budget so you won’t be caught by surprise.

6 ways you can finance your home renovation

If you don’t have the savings available to pay for your home renovation, there are a number of ways you can finance it. 

  1. Personal Loan

A personal loan allows you to have cash on hand to pay your tradespeople for the work they’re doing and the materials you need. It also gives you the comfort of having cashflow available, should there be unexpected costs that arise during your project. This offers the option to keep your savings aside for other personal expenses that may come up.

A personal loan application is based on your credit history rather than the equity available in your home. You have more flexibility over how you spend your personal loan, and it is a great solution for newer homeowners who haven’t had the opportunity to build up equity in their home yet. A personal loan can be a great solution for urgent upgrades and repairs that come up unexpectedly. 

With a personal loan lender like Nectar, approved funds can be in your account within the same day. A loan with Nectar also allows you to better manage your cashflow, as you will  make regular repayments and know what you need to pay. If you find you have more than you need, you can pay it back sooner with no extra charge.

  1. Refinance your home loan

A home equity loan, of often referred to as a mortgage, allows you to borrow money against your current home’s equity, for a specific project. Often, your lender will require quotes for the work you’re planning on undertaking, and confirmation that the work has been completed. Refinancing is available for large and small projects. You may only require a loan top up for a small renovation project, or a second home loan may be required for a large scale renovation. 

Refinancing your home loan certainly makes sense if you have a larger renovation project planned, and if you have at least 20-30% equity in your home. You will want to make sure you can service the larger home loan repayments though, and be mindful that you won’t have much flexibility in how you use the additional funds you receive.

  1. Accessing Government support

Certain types of home maintenance and repair work can be funded or partially funded by government grants. If you currently receive a benefit, pension or NZ Superannuation, you may be able to apply for up to $1,000 in financial support for specific repairs and maintenance.  

EECA funding is also available for heating and insulation. So if your renovation plans include a wood or pellet burner, heat pump installation or insulation, this is worth investigating.

Be aware that accessing government funding is likely to have restrictions around the contractors you can use, and follow a careful application process. You may also have to repay the funding at some point in the future. 

  1. Using your personal credit card

Using your credit card to pay for minor home renovations may well be the simplest option to finance your upcoming project. Be aware that credit cards often have higher interest rates  than other types of bank lending such as a personal loan, and rigid repayment terms.

A credit card might be useful for purchasing the supplies and materials you’ll need for your project  however, you will need to check that your chosen tradespeople accept credit card payments, as cash advances on your credit card to pay your contractors with cash can quickly escalate your interest charges.

  1. Construction Loan

Some types of projects, such as brand new builds, may qualify for a construction loan. However, this type of finance is also worth looking into if you’re looking at a significant addition to your home. 

Construction loans don’t pay out a lump sum, but rather have a staged release of funding, which can have the benefit of staggering your interest payment commitments too. Often, the loan is paid directly to your builder or construction company.

  1. Using your personal savings

Deferring projects until you’ve “saved up” is an option, but for some maintenance and repair projects that can mean that the job scope can blow out. In some cases, it can be cheaper to action things when they first become an issue, rather than leaving them to get worse, which can lead to other issues. For example, a leaky pipe can lead to rotting floorboards if left unfixed for a significant period of time. 

It may be that you can supplement your savings with another finance option. By using your savings first, you’ll save on interest costs, or by keeping your savings in reserve, you’ll be able to tackle any budget blowouts without needing to look at other finance options.

As we navigate a recession, and our work habits change to people having more flexible work practices (and working from home more), people are spending more time at home, and want their home to work better in this flexible working world. Renovations are often a cheaper alternative to moving house to get what you want from your “dream house”. Just do your homework first to ensure you understand the upfront and ongoing costs of your project. 

Financing doesn’t need to be a headache. Good research and a solid plan can take much of the stress out of such a big decision.

How can Nectar help?

If you’re keen to apply for a personal loan to finance your home renovation dream project, get started with Nectar for an instant quote and rates. Borrow better, faster and kick start your project today!

*Nectar’s lending criteria and responsible lending checks apply.