Can I borrow money to renovate?

If you own a house long enough you are likely going to need or want to do some work on it to keep it looking good. For small things you should be able to pay in cash, and ideally you should also save for larger renovations, but often if its going to be expensive, the only option is to increase your mortgage.

The key thing to remember that you can only borrow up to a certain level of the houses value. For most houses this is up to 80% of the value, though you may be able to get the lender to go to 90%, if the work is needed and they have the capacity for lending over 80% Loan to Value Ratio (LVR). The best way to check the value is use the RV/CV/QV or go to homes.co.nz and see the estimate. The bank may want a valuation but ideally they will not.

Ideally you have enough equity in your house to cover the cost of the work, without relying on an increase in value. There are two key scenarios here.

Minor works

This is for work where there is enough value in the house to cover the work, and we are not expecting major increases in value, or relying on the work increasing the value. In this case you usually just apply for the additional money up to the maximums above, and the money sits in your account until you use it.

For example, you have a $600 000 house, with a mortgage of $400 000, and need $50 000 to do up the kitchen and bathroom. 80% of $600 000 is $480 000, so assuming your income is ok, then there should be no issue getting this money. The bank may want to see plans etc, but often they don’t.

Major works

This is for work where either major structural work is being or part of the house is being demolished first, or we are relying on the increase in value of the house after the work is done.

For example, you are looking to add a level to the house, or extend some rooms. Take a 600K house with a mortgage of $400 0000. You want to spend $200 000 doing it up, which means that on current value it will be at 100% LVR. To make this work, we need the final loan to be at 80% of the new value after the work is done. So for a 600K loan the house would have to be worth 750K when its done. So the 200K work has to add 150K of value.

The bank is going to need the plans and specs for the work being done, quotes and eventually a valuation showing what its worth now and what it should be worth when its finished.

This is a major undertaking and close to building a house from scratch.

At DUX we have helped many people do minor and major works to their home, if you are looking at this, come and see us and we can advise on the best way to go about it, and help you get it done with a minimum of hassle.