A new Cotality report reveals that the premium to trade-up is dropping across main centres
A new Cotality report says falling mortgage rates and easing trade-up premiums have created a good time for property owners to upgrade to larger homes. However, it’s still not cheap, with extra cost exceeding $100,000 nationally.
The gap between three and four-bedroom house values has narrowed over the past year, with Auckland City seeing its massive $601,000 trade-up premium drop by more than $32,000. Manukau, North Shore, and Rodney all show premiums exceeding $300,000 but trending downward, while provincial centres like Central Hawke's Bay, South Waikato, Whanganui, and Whangarei have recorded premium drops of at least 10%.
This convergence of falling premiums and dramatically lower mortgage rates is creating what Cotality Chief Property Economist Kelvin Davidson calls "a more favourable time for aspiring upgraders."
Commenting on the current borrowing environment, senior mortgage adviser Claire McArthur said those coming off fixed rates in June are well placed to free up some cash.
”If you fixed for 12 months and were on 6.85%, now coming onto 4.95% - that's a pretty decent improvement.” McArthur said.
“We have another lot of clients coming off fixed rates in June, so there is definitely still a higher number of Kiwis rolling off those higher rates. Some are rolling off lower rates to go higher, but the pain is less there.”
Cotality chief property economist Kelvin Davidson said that for those considering an upgrade, the timing looks as good as ever.
“Mortgage rates have fallen steadily, there’s plenty of choice/listings on the market, and the gap in values between three and four bedroom houses has also come down in a lot of areas,” Davidson said. “It wouldn’t be a surprise to see more owner-occupiers shifting home in the medium term.”
Regional variations reveal best value spots
The trade-up cost varies substantially by region. Outside the main centres, six areas posted premiums exceeding $300,000 - Queenstown, Hastings, Mackenzie, Waipa, Whakatane, and Western Bay of Plenty.
At the other end of the scale, Ruapehu offers the country's cheapest upgrade path at just $97,264, while Clutha and South Waikato sit only slightly above the $100,000 mark. Dunedin and Upper Hutt also provide more affordable options with premiums below $200,000.
Wellington City shows how volatile these premiums can be. Costs jumped from around $197,000 in 2020 to $284,000 in 2021 before settling back below $240,000 now.
Davidson said that while it has never been “cheap” to upgrade a home, those in the property space will want to keep watching for mover activity.
“Past experience suggests that a flat/soft property market can be a good opportunity to trade up, and of course mortgage rates are currently down, while there’s plenty of choice out there for buyers too,” he said. “‘Movers’ remain a group to keep an eye on in the coming months.”
McArthur said the broader market sentiment is gradually improving, though progress remains measured.
"We still feel that things are looking better than they did towards the end of last year, but it's just been a slower recovery all around," she said.
"Winter is always traditionally a slower time for the real estate market, but I do think we're turning a corner as people wrap their heads around these lower rates and getting used to the new norm."
