Our houses are still being used as an ATM, and for larger projects

Personal Finance / analysis

While the number of mortgage top-ups have fallen, they are still a very popular way of funding big personal projects. And the data suggests they are being used more for home renovations as other uses fall away

30th Sep 23, 10:00am by David Chaston

New data out from the RBNZ allows us to look at how home loan borrowers use their houses as an ATM.

This data reveals the level of "mortgage top-ups" that are occurring.

Borrowers who already have a mortgage can go back to their bank and seek new borrowed money based on the existing real estate security the bank holds. This is colloquially referred to as a 'top-up'.

And we do that often, perhaps more often than is realised. In August alone, banks approved and disbursed more money to 6,338 borrowers. That is a lot when you know that in the same month, they issued new property loans to 6,774 borrowers.

However, 6,338 top-up loans is actually a modest number historically. In March 2017, there were 15,398 and in March 2021 there were 15,334 borrowers who got top-ups.

After the early pandemic surge, we have borrowed a lot less this way, partly as higher mortgage interest rate bit, and partly because lenders felt we were getting a bit carried away.

But those that kept borrowing this way, did so for larger amounts. The averages show that clearly.

It is no longer about a $70,000 top-up (a new car? a fancy holiday?), it is now a $100,000 project. So perhaps a pandemic home renovation?

This chart is actually not quite all it seems. To derive it we compared the number of building consents for 'residential alterations' to the total number of top-up home loans approved. There is a rough relationship, enough to suggest that house alterations might be a more dominant driver, but it isn't conclusive. The average consent value for alterations is about $80,000, but it has been for many years now and was that level in January 2017. And the number of alteration consents has been roughly stable too at 2500 over that same period. For the mortgage top-up averages to rise based on more alterations activity requires the other uses of mortgage top-ups to fall away, and we don't have direct confirmation of that. It is a presumption.

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12 Comments

by HughJorgan | 30th Sep 23, 10:56am 1696024582

It’s pretty fair mortgages are being topped up for renovations.

by Zwifter | 30th Sep 23, 11:22am 1696026142

A reno can be the way to go, maybe then do not have to sell it and then enjoy living in it and it adds value. I think the mistake many people make is doing a load of work just prior to selling it, better to reno early then live in it for years get the enjoyment and the appreciation in value.

by nigelh | 30th Sep 23, 11:50am 1696027823

I'm happy to do a reno to the extent of slightly over capitalising and to get the enjoyment from the reno. Any appreciation that may occur at a later date due to the reno is a bonus.

by Sluggy | 30th Sep 23, 1:19pm 1696033180

It's really down to your personal thought process. For some houses are a store of value and bbq stories. For others they are a home where value is not in $$ terms.

by Yvil | 1st Oct 23, 4:40am 1696088425

How about houses are both ?

by Sluggy | 1st Oct 23, 11:30am 1696113024

It's just my opinion, but housing as an appreciating asset is a massive societal problem, a huge waste of potentially productive capital and productivity generally. Not to mention the mental stress and anxiety just keeping a roof over your head can invoke.

by CN - new | 30th Sep 23, 1:04pm 1696032255

One common financing strategy by property investors and traders is to use a financial product called an offset account.

Basically a mortgage with a line of credit which offsets against cash in their account to determine their interest cost.

Property investors and traders use draw downs on these lines of credit to finance

1) renovations on renovation projects which are then subsequently resold and line of credit repaid.

2) equity deposits for purchases of new investment properties.

It would be interesting to know how much of the above "top ups" are financing the activities of property traders and property investors, compared to owner occupiers. The activity by the non owner occupiers has an impact on the property market.

Another use of these top ups is that property investors in negative cashflow properties draw down on available lines of credit to buy time until the property becomes positive cashflow. If interest rates remain higher for longer, then the negative cashflow property owner may run out of time as they reach the maximum credit limit of the line of credit before the property becomes positive cashflow.

by JimboJones | 30th Sep 23, 7:28pm 1696055321

It’s basically used to keep the rental mortgage fully loaded so they don’t need to pay tax. Which is apparently fair and standard and should never be questioned.

by CN - new | 30th Sep 23, 10:48pm 1696067301

Players will always game the rules for maximum personal benefit.

by Squishy | 30th Sep 23, 5:31pm 1696048310

Houses are the magic money trees of our "economy", that's why Reserve Banks are so reluctant to raise rates and governments so keep to keep demand elevated while supply is squeezed.

by phalanax | 1st Oct 23, 8:02am 1696100554

Couple of things...I recall long ago (politically) a well known figure pushing apartments for those aspiring to get on the property ladder ,after a recent peek online am I to assume either values have dropped in this market or build quality was so poor that folk are now quitting? Would I be correct in figuring renovating an apartment would be much more difficult as body corp issues drown out the individuals quest for compliance. Feel free to point out the blocks to avoid...lol ....My thoughts on renovations...Ive seen a few and sometimes I wonder why it is some folk dont know when to STOP....lol Seems to me that some folk cant help themselves . Ive seen folk throw tens to hundreds of thousands into a property that honestly could stand that value before any alterations or renovations due to its location alone. What ive found is that if you start messing with something that is fundamentally solid and sound you invite trouble. Ive seen someone add 2 feet to a backwall ,another jackhammer a garage floor to squeeze out another bedroom ( council required of course) and all its really achieved is putting the roofline out of kilter with how it was thus resulting internal leakage (I hear the hammer out when its finished raining/there he goes up on the roof again..lol)...as for the garage floor jack hammering the existing out/re-levelling, Im sure this has distorted the brickwork but definitely resulted in a few reworks via sledgehammer and jack hammer ....lol, bottom line is all this work hasnt added a single dollar to the value of the property as many times its value is intrinsically tied to its location (200m from a fantastic beach in 1 situation)....... stick with getting the fundamentals right and dont mess with what isnt broken....sometimes a fresh coat of paint and a tidy of the gardens /grounds achieves much more than throwing in tens/hundreds of thousands chasing a whim.... some might say get a professional to do the work....but sadly finding a good builder is now no easy task... 'the block' has a lot to answer for I suspect....lol

by JBA | 6th Oct 23, 4:04pm 1696561495

Just to add to that if I may, as a prospective FHB one thing I hate seeing is shoddy DIY renovation workmanship and then the vendor expects top dollar for it. I would have preferred it original, untouched, well looked after instead.