If you bought a home around the 2021 peak, there’s a chance the property that once looked like a great stepping stone no longer gives you the equity you expected. For homeowners whose lives have moved on but property values haven’t, the question is whether you really are stuck or whether there are still ways to make your next move.
Bought at the 2021 Peak? You May Have More Options Than You Think
For many people who bought around the 2021 peak, a lot has changed since then. They may have got married, started a family or simply reached the point where the home they bought no longer suits where their life is heading.
The problem is that their equity position may have changed too.
In the episode, James uses his own situation as an example. He bought his home in 2020 for $1.75 million. At the peak, it was apparently worth $2.4 million, but today he estimates its value at $1.55 million.
That leaves him in a tighter equity position at the exact time his growing family has him thinking about moving.
It’s a situation Michael says is relatively common for people who bought around the same period, particularly those who purchased with a 20% deposit and have been gradually paying down their debt.
But having less than 20% equity available for your next purchase doesn’t automatically mean you can’t move.
For an owner-occupied property, Michael explains that it can be possible to purchase with less than a 20% deposit. The trade-off is that the interest rate may not be as competitive, and the cash contribution from the bank may also be lower.
Depending on the bank, borrowers with lower equity could face a carded interest rate or a low equity margin on top of their rate. That additional cost can be significant, which is why understanding the actual numbers matters before deciding whether moving is realistic.
Moving On From the 2021 Peak Comes Down to the Numbers
When property values have fallen since the 2021 peak, it can be easy to look at your current equity and assume moving simply isn’t possible.
But Michael’s point is that you can’t make that decision without first running the numbers.
Using a $1.4 million loan as an example, he estimates that the difference between a one-year special rate and a carded rate or rate with a low equity margin could amount to just over $200 a week in additional interest – more than $10,000 a year.
For some households, that additional cost could be manageable. For others, it could make moving unrealistic.
The important part is knowing which camp you fall into.
Servicing also becomes particularly important when borrowing at a higher loan-to-value ratio. Michael explains that test rates can be higher for low-equity loans, meaning borrowers may need stronger income to demonstrate they can comfortably afford the debt.
So rather than assuming you’re stuck, the starting point is working out what you could actually borrow, what it would cost and whether those repayments fit comfortably within your household finances.
Get Pre-Approval Before Putting Your House on the Market
One of the biggest mistakes someone in this position could make is selling their existing home before knowing whether they can actually buy another one.
Michael recommends speaking with a mortgage broker first and getting pre-approval for the next purchase.
That process establishes whether the bank is prepared to fund the move and gives you a clearer idea of what you can afford at the other end.
This can be particularly important when you have limited equity. If you need the proceeds from your existing home to create the deposit for your next property, the bank may need a signed sale and purchase agreement that is close to unconditional before that money can be used.
Once the finance is understood, you can start looking at what your existing property realistically needs to sell for.
Know the Minimum Sale Price You Need
If selling your existing property is what unlocks your next move, the sale price isn’t just about getting the best possible result. There may be a minimum number you need to make the next purchase work.
Michael suggests being clear with the real estate agent about that number and why it matters.
If you need to sell for $1.6 million to make your next purchase possible, an offer below that amount may simply not work – regardless of whether it represents a reasonable offer in the current market.
It’s also worth speaking to multiple agents rather than relying on one appraisal. Michael recommends talking to around three agents and making sure at least one has significant experience in the market.
The goal is to get a realistic assessment of whether the price you need is actually achievable before committing to the process.
Give Yourself Enough Time to Sell and Buy
Even if the numbers work, there’s another challenge: actually coordinating the sale of one property and purchase of another.
If you sell with a very short settlement period, you could leave yourself scrambling to find and secure your next home.
Michael suggests negotiating a longer settlement – potentially around three months – to create enough time to find another property and arrange the next purchase.
Conditional offers based on selling your existing property are still happening, but Michael says sellers may not take them as seriously. If another buyer makes a slightly lower offer without that condition, the cleaner offer could be more attractive.
Another option discussed in the episode is working with an agent who operates in both areas of the transaction. If they can sell your existing property while helping facilitate the next purchase, they have an incentive to keep both sides moving.
Do You Actually Need to Move?
Just because moving is possible doesn’t necessarily mean it’s the right decision.
Before taking on more debt, paying a higher interest rate and navigating the logistics of selling and buying at the same time, it’s worth asking a more basic question: do you actually need the bigger house?
Sometimes the desire to upgrade comes from simply having lived in the same property for a while rather than the current home genuinely no longer working.
If the numbers are tight, staying where you are could still be a perfectly reasonable option.
The important thing is that the decision is based on what is actually possible and affordable, rather than assuming your current equity position has made the decision for you.
Who Should You Speak To First?
Michael recommends tackling the process in three stages.
First, speak to your mortgage broker. Work out whether you can borrow enough for the next property, understand the likely repayments and get pre-approval before selling anything.
Second, speak to several experienced real estate agents. Find out what your current home could realistically sell for and whether that figure gives you enough equity to make the next move.
Finally, look at the properties available within your approved price range. There’s little point going through the process if there aren’t homes you would actually want to move into at the price you can afford.
If all three pieces line up, you have a much clearer pathway forward.
Key Takeaways
- Buying around the 2021 peak and having less equity today doesn’t automatically mean you can’t move.
- Owner-occupiers may be able to purchase their next home with less than a 20% deposit.
- Low-equity lending can come with higher interest rates or margins, so calculate the actual additional cost before making a decision.
- Servicing requirements can also be tougher for low-equity borrowers.
- Get pre-approval before listing your existing property so you know you can fund the next purchase.
- Understand the minimum sale price you need to make your next move possible.
- Speak to several real estate agents to get a realistic view of what your property could sell for.
- A longer settlement period can give you more time to coordinate selling your existing home and buying the next one.
- Before taking on more debt, consider whether moving is genuinely necessary or whether staying put makes more sense.
Next Steps
If you bought around the peak and feel stuck in your current home, speak to the Lighthouse Financial mortgage team to understand your borrowing options, get pre-approval and work out whether your next move is achievable.
If you’d like to watch more, check out this episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
