Thinking about upsizing? Here are a few things to know.

Thinking about upsizing? Here are a few things to know.

Upsizing in a cooling property market can have advantages, especially if you get the timing right.

With the property market showing signs of cooling, home owners keen to upsize need to consider how to best time the sale of their existing home and the purchase of their new one.

Buying your new home first

Buying a new house on the condition of selling the existing property is one way to approach upsizing. The benefit of buying first is it gives you time to shop around and find the perfect dream home. In a cooling property market you often have the opportunity to negotiate the terms of the purchase, such as making it subject to the sale of your existing home.

This is very different to a heated property market where vendors are typically unwilling to accept conditional offers. The benefit of making any deal subject to the sale of your existing home is that there is less risk associated with the transaction. You can still walk away from the deal if you don’t sell your home within the agreed time frame.

If this is the approach you are considering – it is still important to do your research on how much your existing property is worth. Some upsizers can get into trouble when they have a conditional offer accepted on a new house only to find their existing home doesn’t sell for what they thought it would, leaving a shortfall in their finances. While they are protected by having made a conditional offer, it could result in taking on more debt than anticipated, or having to walk away from the purchase.

Selling your existing home first

Some upsizers choose to sell their existing house and then start looking for a new one. Remember though that you might be homeless for some time doing it this way, so you have to be committed to the process. One of the biggest advantages of selling first in a cooling market is that if the market drops further, you could re-enter at a lower price.

However one of the biggest disadvantages in taking this approach is that a cooling property market often means there are fewer houses on the market. So you may have to rent for an extended period of time if you don’t find a suitable new home.

Bridging finance

Bridging finance is a short-term loan that some lenders offer so buyers can purchase a new home while they are in the process of selling their existing one.

In a heated property market, bridging finance is popular as it gives the buyer a better chance of negotiating with an unconditional offer.

However, because bridging finance involves taking on two loans at once, and requires you to sell your existing home within a set time period, it brings with it greater cost and risk – especially true when the market is cooling.

Given there is more opportunity to negotiate terms in a cooling market it makes sense to try and avoid bridging finance where possible.

Buy first, sell first or apply for bridging finance?

Every situation is different, so there is no easy answer to this question. However a good place to start is by talking to a mortgage broker to learn more about your options.

Mortgage brokers know the market well so they will be able to guide towards the solution that suits you.

You can find your nearest Mike Pero Mortgage Adviser here.


Mike Pero (New Zealand) Ltd Copyright © 2020 All rights reserved | Lending and policy criteria and terms and conditions apply. Content on this website is general in nature and is not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on this content and should always seek specific financial advice appropriate to their own individual circumstances.