Show us the money!!

Renovating is the second most expensive thing that James and I have done in our lives*.

To find fast cash we raided the boys piggy banks, but all those five and ten cent coins didn't amount to much.  However, a quick call to our trusty mortgage broker Ian Morgans paid off. Ian organised our loan when we bought the house so understands our situation well.

He said that between us we could borrow another $550,000. Gee thanks Ian, nice offer but how do we feed the kids and manage the repayments on that amount?

Being sensible folk who don't require gold encrusted tapware we declined his kind offer and suggested around $250 000 would be a more appropriate figure. We're not planning on spending that amount but need to have an extra 10-20% available "just in case". Ian outlined the packages various banks are offering at present but pointed out to us:

"We can use any Bank, but after the latest shake-up in interest rates, unless you are unhappy with ANZ, it probably does not pay to switch lenders. The ANZ rate is 6.46%. Suncorp and NAB are the only others that are fractionally less. However, it is not worth the cost and effort of switching, unless you expect considerably better service from either of them."

We've been happy with the ANZ, and to be honest the thought of more paperwork is offputting so we decided to stick with what we know and obtain a line of credit via the ANZ BreakFree Package. Ian said:

"A line of credit is just like a credit card with a huge limit. You only have to pay interest monthly, which is calculated on your daily balance, and you don’t have to pay off the debt. If you have paid off the debt to zero, then you will not have to make any payments and you will always have access to the full loan limit (even if you are not working or unable to borrow money)."

The first step in obtaining this line of credit was to have the house valued. This is paid for by the ANZ as part of the BreakFree package. A nice man called George from Herron Todd White valuers spent about 15 minutes walking around the property measuring and taking notes. I smiled at him very nicely, ensured the children had clean faces and pointed out the nice city views in an attempt to butter him up. He declined my offer of a cup of tea but said he would write a report and send it to Ian Morgans.

The end result is best described in Ian's words:

"As mentioned, the valuations are extremely conservative because there are currently several valuers being sued in Brisbane by banks that have repossessed properties and sold them below the certified valuation figure. So the very conservative valuation for Whish St has come back at $700,000. "

This figure was good news to me - having a good handle on the market we had expected less, so I guess George liked us well enough! However, this valuation meant to avoid paying mortgage insurance the maximum line of credit available is $217 000. This is probably a good thing as will enforce us to stick to budget. And as Ian pointed out:

"Under the ANZ Breakfree Package, it is free to re-apply or change your loan once per year. So, should you require further funds later, it is a simple process to get another valuation done that takes into account the renovations completed, to achieve a much higher valuation figure. We can do this either once renovations are completed or before then, by applying for a construction loan and providing final quotes and builders plans."

Ian said that it should take about 10 days to get unconditional approval, loan documents and settlement of funds. Awesome! So easy! Let's start shopping.............OR NOT. WHAT?

So here's where we've faced the first bump in our reno roadmap. Out of the blue we heard from Ian that the bank changed their mind about providing us with the full amount as a line of credit. They only want to give $11,000 until we have:

• a fully signed fixed price builders contract
• council approved plans
• building specifications
• builders insurance
• final amount of new funds required

This poses a problem because to get council approved plans and a contract with a builder we need to spend $20,000. Hmm how to pull a rabbit out of a hat?

On hearing this news I quickly contacted Peter Latemore because it meant we would need to jiggle money around for a few months and could change the time we would be able to pay certain bills. He said:

"This sort of thing has begun happening much more. It annoys me too because it essentially says you, their client, cannot be trusted. It is quite short sighted of banks to insist on approved plans, because that is the very last thing that happens. I could go on but they have become rather unknowledgeable about how the industry operates. Every project ends up with a Catch 22 instigated by the bank – they will not ‘approve’ payments or sometimes the loan itself, until you have obtained all the documentation necessary to build. To get to that point, as you well know now, requires some expenditure, roughly 10-15%. So banks have by default insisted that owners self-fund all the preliminaries. Developers are caught by this too. It is nuts. Banks are stifling things."

In the end we discovered that our BreakFree package came with an extra credit card with a $6000 limit, so we can put the extra funds on this and repay when we get the full loan approved. I wonder if this is a money making ploy by the ANZ, the interest rate on the credit card is way more than that on the line of credit.

Whatever the case it's now all sorted and we can start paying surveyors, engineers and others to get this show on the road.

*The first most expensive thing was actually buying the house. James grandfather said to us "One day this will seem like the cheapest thing you have ever done." Given the increase in property values over the last 7 years he is right, not sure what the future will bring though....


DISCLAIMER !!! Please note I work part-time as Communications Manager for Timber Queensland.  TQ represents everyone from the growers of timber to end users eg architects and growers.  I'm fortunate that I will have access to people that might help answer some of my questions during the renovation.  However, it's important to note that this blog is my personal opinion piece and does not represent the opinions of Timber Queensland.