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Paul Borghi

By Paul Borghi VP, Point-of-Sale Lending

The largest spike in house prices this century has wreaked havoc on the housing market. Rising interest rates have helped slow demand a bit, but most experts are still not comfortable saying when, or if, we’ll see a turn downwards.   

The key is perspective – instead of seeing an obstacle, consider the opportunity in dramatic shifts like this one. If you add the hot housing market to the ongoing effects of the pandemic, you get an increase of homeowners choosing to make home improvements. Whether it’s reshaping their home to build out space for an office or luxury additions such as pools instead of making travel plans, more people are seeking to improve their homes.    

A recent study found that 79% of homeowners would rather renovate than buy a new home. The shock of interest rates along with a nationwide housing shortage is convincing many to stay put and invest in their current home.   

One major driver? The post-pandemic increase in remote work opportunities. According to Forbes Home one of the top home improvements in 2022 is adding or renovating a home office space. Candidates are showing more interest in remote jobs than onsite opportunities, with remote jobs receiving 50% of all applications in February 2022 — despite representing less than 20% of all jobs posted.    

So the thing for people to realize about this trend, really, is that there is no trend. The factors driving the increasing demand for home improvements are going to be around for the long haul.   

Home improvement loan demand increases  

Given that home improvements are not only continuing but increasing – there’s an opportunity for credit unions to provide financing with Home Improvement Loans (HIL). An HIL is a closed-loop unsecured personal loan for home improvement purposes such as luxury projects or repair and replacement projects. They’re available at point-of-sale through licensed and insured contractors, eliminating upfront work on the part of the credit union, and funded to the contractor for work completed upon the homeowners approval. It also offers consumers a fast option without tapping into their home’s equity.    

To show the popularity growth of HILs LendKey saw an increase of 600% in funded HIL volume from 2020 to 2021 and we are on track to more than double volume again in 2022.   

Other industry growth indicators show an average annual growth of 2% to 5%,  but between 2020 to 2021, this growth was 17% with the total market size coming in at $600 billion. By 2025 the market size is anticipated to reach well over $700 billion.    

And that’s not all.   

The average loan size also continues to increase. In 2021 LendKey’s average loan size was $59,000, but the first half of 2022 has seen this average increase to $72,000, primarily driven by the rising cost of home improvement construction materials and labor.    

This means even amidst rising prices and supply chain concerns; home improvements continue at not only a constant but exaggerated rate.   

4 reasons credit unions should offer home improvement loans   

Now more than ever credit unions are looking for new, creative solutions to increase their profitability and diversify their balance sheets. HILs offer an easy, low-risk solution to grow their loan-to-share. LendKey’s lending network makes it even easier by connecting homeowners to lenders by way of contractors, without any effort on the lender’s part.   

Additional benefits:   

  • Strong alternative investment option/attractive return  
  • Guaranteed capital deployment to grow your loan-to-share  
  • Mitigate risk with partial loan ownership
  • Proven performance and seasoned consumer profile   

This provides a closed-loop funding source with checks and balances which sets up a very high likelihood of repayment. This is complementary to the secured lending options credit unions already offer but allows them to also tap into a market they normally wouldn’t be able to on their own.