Renovation Loans Are Up 21% & Granny Flats Are Leading the Charge

More homeowners are turning to renovation loans to get more out of their properties. NAB figures show a 21% jump in renovation lending last year, the sharpest rise in years, with a growing number of Australians using that money to build granny flats on spare land. Many are choosing to build a secondary dwelling rather than move or redevelop, using these loans to create more space and rental income on their existing block. This strategy unlocks equity without taking on a much larger mortgage. From our viewpoint as brokers, granny flats are a savvy way to boost income and add long-term value to a property.

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Online interest in granny flats is spiking. NAB cites Domain data showing “granny flat” became the #1 property search in Sydney (up 3.1%) and entered the top 10 in Perth (+59.8%) and Adelaide (+24.4%). Industry bodies back this up: the Housing Industry Association forecasts tenfold growth in granny flat builds by 2026 (vs. four years ago). Demand is driven by affordability and rent trends. As NAB’s Denton Pugh notes, when rental demand is rising, adding a granny flat “gives homeowners extra space without stretching into a much bigger mortgage or taking on the cost of moving”. In short, building an ADU (Accessory Dwelling Unit) can be a cost-effective alternative to traditional home buying.

Finance Strategies for Granny Flat Projects

Use Your Equity Smartly: Homeowners with equity can refinance or redraw to fund a granny-flat build. Renovation or construction loans let you borrow against the finished value of your property. This means you unlock cash without saving a fresh deposit.
Boost Cash Flow: Renting out a granny flat can make a real difference to your monthly cash flow. A well-built secondary dwelling brings in steady rental income while adding to your property’s long-term value. For investors, that dual-income setup can take the pressure off loan repayments and lift your overall return.
Structure the Loan Properly: Talk to your broker about the right loan setup from the start. A period with interest-only repayments for a short time frame can help with the loan repayments while your new house is being constructed, and most lenders will look at your expected rental income as part of your assessment for how much you can borrow.
Lower-Risk Portfolio Growth: Building on land you already own carries far less risk than purchasing a new investment property outright. Many brokers see this as more than a trend, with housing supply tight and an ageing population, granny flats are looking like a lasting part of the market. It’s a way of getting more out of an asset you already have.

At OM Financials, we work with clients on exactly this kind of project. We’ll help you find the right loan, whether that’s a renovation or construction product, sort out your repayment structure, and figure out how the rental income plays into your borrowing power.Want to know where you stand? Give us a call on 0478 876 967 or book a free consultation and follow us on Instagram and LinkedIn.