NEW YORK - A recent survey by TD Bank (TSX:TD) indicates a significant portion of homeowners are considering tapping into their home equity to fund renovations. Over 1,800 homeowners who acquired homes using mortgage loans within the last decade participated in TD Bank's HELOC Trend Watch survey. The findings suggest that 38% of these homeowners are planning to finance their renovation projects with a home equity line of credit (HELOC) or home equity loan (HE Loan) within the next two years.
The optimism among homeowners is buoyed by substantial growth in home equity. According to a Black Knight (BMV:BKIN) report, the average homeowner had $199,000 in equity as of June 2023, an increase of $14,000 from the first quarter of the same year. This positive sentiment is reflected in the 83% of survey respondents who believe their home equity has increased over the past year, with 57% estimating it at $100,000 or more.
Jon Giles from TD Bank stressed the importance of responsible borrowing amidst this trend. He pointed out that a significant number of respondents without prior experience with HELOCs or HE Loans—57%—are likely to apply for one in the next 18 months. Giles noted that while taking on such financial commitments, it's crucial for homeowners to borrow responsibly, especially for large expenses like renovations.
Renovations are a common goal for these loans, with many homeowners aiming to make eco-friendly changes to their properties, focusing primarily on kitchens and bathrooms. The survey highlighted that 76% of those planning renovations intend to hire professionals for these projects.
Interestingly, the study also suggests a potential increase in housing inventory. It found that 11% of homeowners planning renovations aim to sell their homes post-renovation, and 33% plan to move within five years. In a broader context, 36% of all homeowners surveyed are considering selling their homes within the next two years.
Despite this intention to invest in their homes, many respondents are grappling with high levels of personal debt—90%, excluding mortgages—and perceive interest rates as high (59%). However, there exists an "activation gap" when it comes to debt consolidation; while 93% have not consolidated their debt under one loan at a lower interest rate, 71% expressed interest in exploring options such as personal loans, balance transfer credit cards, cash-out refinancing, and retirement account loans.
This data points towards a trend where homeowners are looking to leverage their increased home equity responsibly while also showing an appetite for managing existing debts more efficiently. With a projected rise in loan applications by 9% over the next 18 months, financial institutions might see an uptick in business catering to these needs.
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