Renovation boom: Alteration loans surge as homeowners avoid buying in a competitive market

Data analysed by Money.com.au reveals that home loans for renovations are now the fastest-growing segment of new loans — increasing by 43% monthly and 7% annually.

There were 3,113 new alterations loans issued in July 2024, compared to 2,173 in the previous year. The average renovation loan is $272,085, compared to a year ago at $230,787.

Alteration loans are for changes to a property that affect its overall structure or function. This includes things like adding a garage, carport, pergola, or doing major repairs like re-roofing or re-cladding.

Money.com.au‘s Home Loans Expert, Mansour Soltani, says rising property prices, the limited supply of new homes, and the cost of stamp duty are pushing homeowners to renovate rather than buy new homes.

“Rising property prices are providing homeowners with increased equity, allowing them to cash out and fund renovations or other major expenses without needing to sell their existing homes,” he says.

“We’re seeing a strong trend of homeowners choosing to renovate rather than relocate. This allows them to adapt their homes to their evolving needs — whether downsizing, upsizing, or building a granny flat — while avoiding the financial and logistical stress of buying in a competitive market.”

Mansour says as property prices continue to increase, homeowners also face higher stamp duty costs.

“As property values rise, so does the cost of stamp duty. Since transfer duty is calculated based on the dutiable value of a property, homeowners are seeing a significant increase in these costs as property prices climb,” he says.

“This is why many are reluctant to sell and instead find that renovating or investing in their current home makes more sense.”

Western Australia had the largest growth in alteration loans (78%), followed by Victoria (44%) and Queensland (43%), when comparing the month of July 2024 to the same month in 2023.

Money.com.au‘s Research & Data Expert, Peter Drennan, says that although alteration loans represent a relatively small share of the total loan market at 9%, their recent growth has outpaced all other loan types.

“Renovation loans are typically more popular in New South Wales and Queensland; both have a higher share of alteration loans compared to their share of total loans in Australia,” he says.

“That is further indication of the challenges of buying property in these markets.”