If you own a home in Melbourne’s inner east and have been thinking about upgrading, the past six months have probably felt like poor timing. Each property price update brings another fall, and it is natural to tally up what your own home has lost.
But if you’re planning to upgrade, focusing only on what your current property has lost can give you an incomplete picture. It’s also important to look at what has happened to the property you want to buy.
Over the last few months, higher-value Melbourne properties have been falling faster than more affordable homes. For anyone upgrading in a falling market, that can work in your favour because the gap between the home you’re selling and the more expensive home you’re buying may shrink.
This article is general information only and does not constitute financial, legal or tax advice. We recommend seeking advice from a qualified accountant and solicitor before making any decisions.
Melbourne’s premium market has fallen harder
Melbourne’s property downturn continued in September. Cotality’s latest Home Value Index showed dwelling values fell 0.7% during the month.
Houses have experienced larger falls than units. Melbourne house values declined 0.9% over the month, compared with 0.3% for units.
But it’s the difference between price tiers that is particularly relevant for upgraders.
According to Cotality’s September Housing Chart Pack, over the three months to August, Melbourne’s upper quartile fell 5.3%, compared with 3.3% for the middle 50% and 1.3% for the lower quartile.
So why are more expensive properties being hit harder?
Borrowing capacity is part of the explanation. Higher mortgage rates reduce how much some buyers can borrow and make it harder to satisfy lenders’ serviceability assessments. The Reserve Bank of Australia (RBA) raised the cash rate to 4.60% in September, its fourth increase this year and the highest setting since 2011. Cotality estimated the three rises between February and May had already cut the borrowing capacity of a median-income household by 7%, or more than $53,000.
When borrowing capacity falls, it can put greater pressure on demand at higher price points, where buyers typically need larger loans.
How falling prices can reduce the upgrade gap
Here’s how that plays out for an upgrader. Say you own a $1.6 million home in Stonnington and have your eye on a $2.8 million family home in Boroondara.
This example is illustrative only. It is not a forecast or a credit assessment. Actual property values, sale prices and lending outcomes will vary.
| Before | After | Change | |
|---|---|---|---|
| Home being sold (down 4%) | $1,600,000 | $1,536,000 | -$64,000 |
| Home being bought (down 10%) | $2,800,000 | $2,520,000 | -$280,000 |
| Gap to fund | $1,200,000 | $984,000 | -$216,000 |
Your home has lost $64,000. The home you want has lost $280,000. The amount you need to fund has fallen by $216,000, or 18%.
There are two effects at work here.
If both properties had fallen by the same 4%, the upgrade gap would still have reduced by $48,000. That’s because 4% of a $2.8 million property is a much larger dollar amount than 4% of a $1.6 million property.
The remaining $168,000 reduction comes from the premium property falling by more than the existing home.
That’s why looking only at the loss on your current property can be misleading when you’re upgrading.
Then there is a stamp duty saving on top of that. On a $2.52 million purchase, duty is around $143,800 (as at October 2026, based on Victoria’s State Revenue Office calculator). That’s around $18,200 less than the $162,000 it would have been at $2.8 million.
The timing of your sale and purchase is key
This advantage depends on selling and buying into broadly the same market. Waiting for your existing home’s value to recover doesn’t necessarily improve the upgrade maths. If the wider market rises at the same time, the more expensive property you're targeting may also recover.
The practical challenge is coordinating the two transactions.
Selling first can give you certainty about exactly how much equity you have available for your next purchase. But it can also mean finding temporary accommodation if you don’t secure your next property quickly.
Buying first can give you more flexibility around finding the right home, but you may need bridging finance to cover the period between purchasing your new property and selling your existing one.
The right sequence depends on your equity, income, borrowing capacity and tolerance for carrying additional debt temporarily.
We explained these options in more detail in our recent article, What happens to your mortgage when you upgrade your home?
Managing the risk
Upgrading in a falling market comes with its own risks, and they are larger in dollar terms at the top end.
A bigger home means a bigger loan and more exposure if values keep falling. In the example above, a further 5% fall would take $76,800 off the home being sold but $126,000 off the home being bought. That will have less of an impact over a longer-term hold period, but it will affect your equity position in the meantime.
Interest rates are another thing to consider. The larger your loan, the greater the dollar impact of any further rate rise. If you’re taking on more debt, you’ll need to consider not only whether you can afford the repayments today, but how your budget would cope if rates rose again. Our borrowing capacity calculator is a useful starting point.
Run the upgrade maths before making your move
Ultimately, whether now is a good time to upgrade in Melbourne comes down to your finances, your timing and your appetite for risk. Nobody can reliably call the bottom of the market. In past recoveries, premium properties have historically rebounded harder than the broader market, though past patterns don’t predict what happens next. What the numbers show is that an upgrader’s relative position has improved, whatever happens to prices from here.
This is where advice makes the biggest difference. At AXTON Finance, we model your likely sale value, your target purchase price and the gap you need to fund, then work through whether selling first or bridging suits your situation. With a panel of more than 30 lenders, we can structure your home loan around the numbers, and our private banking team works with clients borrowing at the premium end of the market.
This article is general information only and does not constitute financial, legal or tax advice. We recommend seeking advice from a qualified accountant and solicitor before making any decisions.
Thinking about upgrading? Book an upgrade strategy session with AXTON Finance to model your sale, your purchase and the gap in between. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch.
