Make sure you tell the bank
I had my funding ready to go because I’d recently repaid some debt and the bank had allowed me to keep access to those funds. The same could be true for you if you have an offset facility, a revolving credit or a “redraw” facility, so have your renovation funds on hand without having to ask for it.
Squirrel mortgages founder John Bolton says, “Many people don’t tell the bank they’re renovating and it’s all fine until they need to go to the bank for more money, then it can get really messy.”
And that’s exactly what happened. Though our house was but a shell, we needed to make an application for investment financing for a separate project and the bank was none too impressed to discover we had torn the place apart.
Even though many people don’t, John Bolton says “If you read the terms and conditions of your loan, you absolutely should tell the bank what you’re doing if you’re doing anything that would impact the property’s value.”
So, my bad – I hadn’t read those Ts and Cs and I suspect I’m not alone in that. But it follows – the bank has a vested interest in “my” house because it’s the security for my loan.
It resulted in it wanting to take control of the final lending on the project, but it thankfully didn’t alter the overall budget. But the lesson is: whichever way you’re funding it, if you owe anything to the bank, give it a heads up.
Construction loans can be costly
The structure the bank implemented after our telling off was a construction loan, which you utilise as you go. The fish hook is a construction loan remains on a floating interest rate until you’ve drawn down the last of the funds – and that typically doesn’t happen until the Code Compliance Certificate (CCC) has been issued by the local council.
Thankfully, the floating rate isn’t as ugly as it was before the Reserve Bank started cutting interest rates, but it remains significantly higher than fixed rates, so that adds cost to any delays. Given the time of year, I suspect we’ll be waiting for our CCC and paying that floating rate for a little while yet – and it’s a cost worth building into your build budget.
Devil in the details of your fixed-price contract
Everything had been priced up right down to the toilet roll holders, so we thought brilliant, we have a fighting chance of getting it in close to the budget. Of course, we also didn’t want to be naive, so we added on a healthy percentage and kept that upper limit in our minds.
To be honest, it didn’t blow out badly – but our inexperience did lead us to overlook a few things that I’d know to look for next time. Those things include not factoring in what was not included in those costings, and whether what was factored in aligned with what we’d be happy with style-wise.
The significance of what sat outside the budget became clear only now the project is all but fulltime complete. Two sets of stairs and the retaining wall were destroyed as heavy machinery accessed the site, but it turns out restoring them sits outside the budget.
So, while the house and what’s inside is looking great, the grounds – not so much. With non-existent DIY skills, fixing that will add to the overall cost, as will getting some curtains, but that bit I did know about.
The second point really does show my renovation naivete. I assumed the numbers assigned to things like carpets, vanities, tiles – y’know, the stuff that makes the place nice – would be sufficient to make choices that appealed.
Instead, a lot of extra cost was on me because ultimately, I decided if I was going to be taking on more debt, I wanted to at least make sure it was something I would like looking at.
No, I haven’t gone all super-high end, and that is why it’s a lesson that before you take solace in how detailed those quantity surveyor-approved costings are, you also marry it up with what your idea of “nice” costs. And of course, shop around. I ended up getting lots of beautiful things that didn’t blow the budget and my husband got his dream oven by finding a company that had gone into receivership and was auctioning things.
Don’t do too many things at once
Being on maternity leave with a small baby, moving to a new location every few weeks, renovating, building an investment and then returning to fulltime work – it was not only stressful, but introduced a lot of financial risk that could have been avoided by doing things sequentially, ie more slowly, instead. Thankfully, it worked out okay in the end, but if a client told me they were planning to do the same – I’d be desperately trying to convince them not to.
