The best finance options for clients doing DIY

DIY and home improvement are proving popular ways to beat COVID-19 induced boredom according to recent data uncovered by CBA and Bankwest.

According to credit and debit card spending analysis from Commonwealth Bank’s Global Economic and Markets Research team, cardholders spent 20% more on household furnishing and equipment in the week ending April 3 than they did in the same week last year.

The latest Bankwest Spend Trends data reveals a similar result in Western Australia. The analysis shows that during the week ending April 20, there was 42% turnover growth in furniture stores and 34% growth in special trades (comprising of construction equipment, doors, fencing and glaziers) compared with the pre-coronavirus period of February 22-28.

With Australians spending more time at home and more money on home improvement, brokers could help their existing clients by lining up the most cost-effective finance options available in place of the borrower using their credit card.

Finance options for home improvement projects

According to Jason Chan, acting executive general manager home buying at CBA, brokers can help their clients fund renovation projects in a number of ways.

“Eligible CommBank customers can use the equity in their property to top-up additional funds on their existing home loan without needing to take out a separate loan, saving time and paperwork, or redraw on an existing home loan for a fast and easy option if they have made additional repayments,” he says.

He adds that while personal loans may be suitable in some circumstances, finding the right finance solution really comes down to a case by case approach.

“If a customer is looking to finance smaller renovations, a personal loan might be suitable, however, a broker should review the needs and objectives of each borrower to help them secure the most suitable solutions for their home improvement project.”

Identifying the type of work involved

Managing director of OneSite Finance Liz Zaki says when it comes to renovations, it is important to look at the type of work involved.

“When a client asks our help to do a home renovation, we ask the question if it’s structural or non-structural and what they are trying to build or renovate,” she says.

If the renovation is considered non-structural, funding the project could be as simple as taking equity out of an existing property.

In the case of structural renovations that require council approval, Zaki says a construction loan is the best course of action.

“We would review their current home loans, do a new valuation on their property and explore the options whether to do it with their current lender or a different lender,” she says.

“If it has to be done through a different lender, we would do a cost and benefit analysis to make sure that if they do decide to move, it will be beneficial to them in terms of interest savings and the product features they’re looking for in a loan.”

Helping customers save on interest

Zaki says brokers could potentially save their clients big bucks by helping them to tap into equity for cosmetic renovations or new furniture in place of the client using their credit card.

“This is definitely cheaper than getting a personal loan or funding it through a credit card as the home loan rates are cheaper than personal loan or credit card interest rates.”

“Home loan rates start with a ‘2’ these days whereas you can see credit card interest rates of 20%.”

“We would discuss whether clients would like to have variable or fixed rate loans as well as principal and interest or interest only repayments. The product and repayment option will be chosen depending on their personal situation.”