Garnet Capital Advisors Blog

July 14, 2020

Homeowners Focusing on Home Improvement - Banks and Credit Unions Are Lending Them the Funds

EXCERPT:  Home improvement loans are high-quality loan assets for lenders. And while traditionally difficult to find, today's spike in home improvement projects and loans allows lenders to optimize their loan portfolios.

Stay-at-home orders stemming from the COVID-19 pandemic have prompted homeowners to consider home improvement projects, endeavors that present lenders with a prime opportunity to add high-quality assets to the books.

For weeks, Americans have been told to physically distance and stay at home to curb the spread of the coronavirus. And while real estate markets across the nation may have been impacted as a result, there has been a jump in home improvement projects among homeowners looking to remodel and modernize their homes.

Given the cost of undertaking such projects, many homeowners have been seeking loans to cover these expenses, providing lenders with opportunities to add solid assets to their loan portfolios.

According to the Home Improvement Research Institute, there was a major spike in the number of Google searches for keywords like "bathroom remodel" or "kitchen improvements." As the weeks have gone by, such simple searches have been bearing fruit for lenders.

In a survey by Trust Financial's lending division, almost three-quarters of homeowners polled in May claim that they will be starting a remodeling project before the end of the year. And with the average cost of $12,000 for these projects, many homeowners may be in need of a loan, which banks can provide.

Home Improvement Projects Spell Opportunity For Lenders

This is a win-win for both sides: homeowners will get the funds needed to make improvements on their homes and increase their property value, while banks can add high-quality assets to the books. And with all the time being spent at home, homeowners are deciding that improving their homes is the way to go, and they're taking steps in that direction.

Wells Fargo has long been in the point-of-sale financing sphere and is one of the bigger banks in the country that will stand to benefit from home improvement lending.

Large lenders like Truist, Ally Financial, and Wells Fargo stand to benefit from the loans needed to pay for these projects. Ally is using its recent acquisition of a point-of-sale fintech to start funding repairs and renovations, while newly-created Ally Lending just partnered with Authority Brands, the parent company of several home improvement franchises.

Home improvement is excellent business for lenders, while point-of-sale lending has become increasingly popular among banks. The likes of Citizens Bank, GreenSky, and Wells Fargo are all capitalizing on point-of-sale lending, the latter of which has been in this lending sphere for decades.

In fact, point-of-sale lending is growing the fastest among all consumer lines. The sector is reporting annual growth rates of anywhere from 18 to 20 percent. Point-of-sale finance products have very strong growth factors. Consumer behavior suggests that they would be open to setting up installment payments to cover the cost of specific purchases, which is point-of-sale financing.

Lenders Encouraged to Add More High-Quality Home Improvement Assets to the Books

Home improvement loans have always been a high-quality asset for banks, but they have traditionally been difficult to find in volume. Given the current trend towards home improvement, banks have a unique opportunity to optimize their loan portfolios. Banks should be loaning in safer areas like home improvement, either in bulk or flow, or point-of-sale financing, and Garnet has plenty of portfolios and flow programs available for home improvement loans.

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