The hidden costs of 'cheap' money for home improvements
Sunday, 29 March 2026
The conflict raging across the Middle East is putting even further strain on Kiwi households.
Economists at ANZ have forecast house prices will fall 2% by the end of the year, a significant turnaround from their earlier prediction that prices would start to tick up.
This will prolong a rough run for homeowners, typified by several years of stagnation and little sign of the capital gains homeowners have long been accustomed to.
In what optimists describe as a buyers’ market, some homeowners will be looking to stay put rather than sell their homes in a down market. This will be particularly applicable to the tens of thousands of New Zealanders who bought around the peak period.
It’s common then to see the focus turn inward as homeowners look at what improvements they could make to their homes rather than selling at a price they don’t think is fair.
Under these circumstances, it’s little surprise to see a major bank like ANZ launch a new “renovation loan”, designed to give Kiwis access to up to $50,000 on a three-year term at 2.5%.
This loan is new when it comes to renovations, but loans of this nature aren’t unique.
Most of the major banks today offer green loans, giving homeowners access to funds to make their homes more energy efficient or to invest in electric vehicles. These loans carry a rate as low as 1% for a three-year term. If your renovations involve solar panels, heating systems or double glazing, then these green loans actually offer better value.
Katie Wesney, a financial adviser and the chief strategic coach at Enable Me, says that if you’re already planning a renovation, then a loan like this can be good value.
“At 2.5%, you're borrowing well below standard mortgage rates and well below the 14-21% credit card rate that often ends up funding the overflow costs,” she says.
“The question isn't really whether to use it, but how to use it well.”
The catch with these loans is that if you don’t pay them back in the set three-year period, they will become part of your broader mortgage.
A spokesperson from ANZ tells me that customers have the choice of fixing the remaining amount or moving the loan to a floating rate (5.79%). Once this happens, that 2.5% promotional rate becomes a distant memory for anything you still need to pay off.
“If you're not actively trying to clear it, a kitchen renovation can quietly become a very long-term debt,” says Wesney.
Her advice is to go in with a realistic repayment plan, keep the scope tight and don’t let “cheap money” expand the brief.
“For disciplined borrowers with a clear project, it's a smart product. Just don't let the low rate do the thinking for you.”
Understanding the service terms
No matter what the interest rate might be, this is still debt, and the onus will rest on you to repay it before the term expires – or risk forking out for the higher interest rate down the line.
Data provided by ANZ shows that if you were to borrow:
$5000 to do some landscaping, your fortnightly repayments would be $67;
$10,000 for repainting your home, your fortnightly repayments would be $133;
$30,000 for a bathroom renovation, your fortnightly repayments would be $399;
or, $50,000 for your dream outdoor entertainment space (including a hot tub and sauna), your fortnightly repayments would be $665.
If you’ll struggle to swallow that fortnightly cost in addition to all your other expenses, then all you’ll end up with is a fancy bathroom and a whole lot more stress.
Should any leftover debt shift to a fixed or floating rate, then it essentially becomes part of your mortgage, which could mean it ultimately takes you longer to become mortgage-free.
A different kind of loan
Mike Casey, the founder of Rewiring Aotearoa and recent winner of the sustainability award at the New Zealander of the Year awards, says that these low-interest loans are good if you can get access to them.
However, he notes that the short timeframe to pay off the loan can place enormous pressure on homeowners as they rush to pay off the loan as quickly as possible.
For an average household repaying a $16,200 loan for a 9kW solar installation, Casey says the monthly cost (even at 1%) of a green loan would still cost a family hundreds of extra dollars every month because of the short loan term.
“Those who can afford to take a short-term hit will benefit from significantly lower energy bills for decades to come, while those who can't afford the upfront cost will not,” says Casey.
“Energy inequality will continue to widen without providing access to long-term finance to those who currently are unable to access it.”
Casey is proposing a different approach called the Ratepayer Assistance Scheme, where money is borrowed through local councils and repaid over time via a line item on your property rates bill.
The idea behind the scheme is to take advantage of the high credit ratings of local councils, so that homeowners can get access to interest rates significantly lower than a standard mortgage or personal loan.
The loan essentially becomes attached to the property and is paid off over 15 to 25 years, rather than three years.
This initiative is still a work in progress, but Casey has been collaborating closely with a number of the country’s largest councils to get this off the ground.
So what are your views on renovation loans and green loans? Will you be tapping into these loans to get access to this money? And do you think Mike Casey’s alternative has the potential to make a difference? Let us know in the comments below.