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Falling interest rates are prompting borrowers to upsize, with one broker noting a growing appetite to secure property upgrades while conditions remain favourable.
Two Red Shoes mortgage broker, Brett Sutton, said he has witnessed smart borrowers taking advantage of recent interest rate cuts to boost borrowing capacity and move into a bigger home.
A lot of these upsizers are families who have been patient during the rate hike cycle and are now jumping at the opportunity, as rates finally begin to fall.
Sutton said that many borrowers are seeing an opportune window to move into a better home or location.
This mirrors recent data from PropTrack which found that dwindling supply, rising demand, and low rates have sparked a sense of FOMO into borrowers. Auction clearance rates recently hit the highest point in a year.
Interest in upsizing is expected to continue, as more rate cuts are passed down. Many are expecting the next cut to come at the 11–12 August RBA monetary policy meeting.
Further to this, Sutton said there was a “clear trend” of borrowers maxing out their loans in order to secure the best property possible. Many are stretching themselves thin in the process.
“Property prices are still high, and for many it’s about doing what’s necessary to get into the right home now. A lot of borrowers are hoping wage growth kicks in before the next rate hike cycle – it’s a calculated move based on future income potential,” said Sutton.
He said there are “very few” who are downsizing or taking out modest mortgages.
The strong competition among first home buyers and high costs of buying and selling mean most people are opting to stay put or stretch a little further.
“Instead, borrowers are working harder, tightening up their budgets, and cutting costs in other areas to improve their cash flow and hold onto their homes,” Sutton added.
The struggle to upsize came to a head at the beginning of the year, with data from Domain revealing a record-high disparity between median unit prices and median house prices.
In Sydney, the difference between a typical unit and a house reached $610,662. Meanwhile, the median house price of $1,470,625 was almost double the median unit price of $859,963, as of January.
According to Domain, in the last 20 years, the gap between unit and house prices has grown more than five times.
“When the pandemic hit, it amplified this trend in house values where it increased by just over 40 per cent. House values have risen by a lot more than unit values over the past five years,” said CoreLogic research director Tim Lawless.
“For all intents and purposes, the latest figures show a record margin when affordability is extraordinarily stretched. It is a little bit bewildering to see such a significant gap.”
Where are the best suburbs for upsizing?
To help families commit to upsizing, PropTrack revealed suburbs in major cities where median unit and house prices are relatively similar.
The Melbourne suburb of Doveton took the top spot, with a median unit price of $533,500 and a median house price of $600,000. This was followed by Laverton and Sunshine West.
The Western Australian suburb of Mandurah followed with a median unit price of $460,000 and a house price of $550,250.
Just one Queensland suburb made the top 20, with Bundamba. The median unit price was $497,000 and the house price $619,500.
No NSW suburbs made the top 20, with the list dominated by Victorian suburbs.
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