Renovation lending opportunities await lenders, survey finds

Homeowners are choosing to stay put, limiting opportunities for first mortgages but giving lenders a chance to take advantage of a growing renovation market.

Nearly 75% of homeowners said they're focused on staying in their current home and improving it, according to a survey of 2,000 homeowners in the United States conducted by Trex Company. With 55% planning to renovate rather than relocate, demand for home improvement capital will remain strong even if the purchase market slows further.

"We expected people to say they're staying because they can't afford to move," said Jodi Lee, senior vice president of marketing for Trex, in a press release Wednesday. "What we didn't expect was how many homeowners told us they're staying because they genuinely love where they live. And that their backyard, specifically, is doing more emotional heavy lifting than any room inside the house."

Just 8% of homeowners plan to move before renovating first, while about 40% are more interested in staying in their current home and improving it compared to a year ago, the survey found.

Accrued equity among mortgage holders also accelerated to $18 trillion for the first time on record in July, according to a report from Intercontinental Exchange, presenting opportunities particularly for home equity loans and home equity lines of credit. 

Multiple lenders are expecting to take on more borrowers after announcing new home equity products this year. Better Home & Finance partnered with Stripe to launch a home equity card, Gershman Mortgage released a standalone home equity line of credit called 5-Day HELOC and SoFi entered the home equity market by adding HELOCs to its lending platform.

Some lenders also have specific renovation products. CrossCountry Mortgage offers four types of renovation loans: conventional, Federal Housing Administration 203(k), United States Department of Agriculture and Department of Veterans Affairs. Rocket Mortgage and loanDepot provide home improvement financing options as well, with a focus on FHA 203(k) loans in particular.

While there is an opportunity for lenders in the renovation space, it presents risks that don't exist with traditional mortgages. Lenders are forced to rely on third-party contractors chosen by the borrower and may deal with unpredictable construction variables, such as cost overruns, delays and disputes between homeowners and builders.

The increase in renovations also means less first mortgages as the market moves past the spring and summer homebuying seasons. Pending home sales fell 3.5% week over week to their lowest level in almost three years, Redfin reported Thursday.