Client Scenario | Renovating in retirement

Bigger loans and buying later in life means more Australians are reaching retirement age with a sizable mortgage. It also means renovations are being pushed out. An increasing number of older Australians are finding their usual bank – even one where they have a long-term and satisfactory repayment history – are knocking them back. It’s another situation where RG 209 makes it challenging for older clients without a regular income from paid work.

However, for many retirees, funding expensive home renovations from their retirement savings can be a risky strategy, particularly during periods of market volatility. When a large lump sum is withdrawn at a time when markets are down, losses are effectively locked in, forcing the sale of more assets at a lower price to raise the required cash. Importantly, a depleted capital base can permanently undermine the longevity of your client's retirement egg.

This scenario is based on a real life situation, although names and places have been changed to protect client confidentiality.

Jenny (70) and Greg (72) are active self-funded retirees who love their home in Sydney's eastern suburbs. They wanted to fund a home renovation without dipping into their superannuation or other income-producing assets.

Despite a perfect credit history, the couple’s bank declined their renovation loan due to their age. They chose not to draw on their other investments to cover the costs, knowing that doing so would permanently diminish their capital base and compromise their long-term retirement income.

The renovation was quoted at $350,000. With an LVR of 30% Jenny and Greg could access $585,000; however, they chose to borrow only what they needed to fund the renovation and preserve the remaining equity to meet future needs.

Using Household Capital, Jenny and Greg were able to complete their renovation; a modern kitchen and bathroom, plus extensive landscaping and an outdoor entertaining area. These enhancements made their home ideal for hosting family and friends and, importantly, ensured their environment would be safe and comfortable for the years ahead.

Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable, and terms and conditions apply (available upon request). Household Capital Pty Limited ACN 618 068 214, Australian Credit Licence 545906, is the Servicer for the credit provider Household Capital Services Pty Limited ACN 625 860 764.