Despite record low interest rates and a fairly stagnant property market in Perth, getting into the property market is still a hard task, especially if you’re thinking of doing it on your own. So, it’s no wonder that now more than ever before, first home buyers are looking at alternative ways to get into the property market. One of these alternatives is to consider buying property with a friend. You may already be living together in a rental property and get along well, so why not translate that working relationship into property ownership? Buying with a friend has its advantages, you can pool your resources and get into the market sooner, but it’s also important to weigh up the risks involved and consider your options.
What should I consider?
- Choose your property partner carefully – look for people you can trust and who have the financial capacity to repay their share of the loan.
- Have a co-ownership agreement in place. This agreement will cover things like how long you intend to keep the property, who will pay maintenance costs, what happens if one party wants to exit and how disputes will be resolved. We recommend you seek legal advice when preparing this agreement.
- Have a plan – what is the goal for the property? Are you looking to rent it out or be owner-occupiers? Note, if you are a first home buyer, you will not be eligible for FHOG or reduced stamp duty rates if you purchase the property for investment purposes.
- Consider the risks – what if your property partner fails to make loan repayments on time or at all?
Do we have to split 50/50?
No, you can choose to own the property in any proportion that works for you. When a husband and wife or de facto couple purchase a property together, they normally do so as joint tenants. This means they own 100% of the property together, and if one of them dies, despite what their will may provide for, 100% ownership of the property will revert to the other. When purchasing with friends, it is therefore advisable to purchase as tenants in common. This means you can choose any proportion of ownership, and that proportion can be sold or transferred to another (subject to the provisions of your co-ownership agreement).
For example, Bill and Ben want to buy a property together worth $430,000. Bill is earning significantly more than Ben and his deposit is $20,000 whereas Ben’s deposit is only $10,000. As Bill is putting in double Ben’ deposit and is able to service a larger loan, Bill and Ben may decide to structure the ownership of the property as 70% to Bill and 30% to Ben.
Property Share Home Loans
Property Share is a home loan option which allows friends to purchase a property together but keep their finances separate. This means you each have separate loans in your own name and can use these loans to purchase a property with the combined value.
This option allows you to keep an eye on your own loan and pay as much towards that loan as you can afford, putting you in a better situation financially. Bear in mind however, if you are on a fixed rate, there may be penalties for paying more than the prescribed monthly payment. Be sure to check the terms and conditions of your particular loan.
If my friend decides not to pay the mortgage, will this affect me?
Yes, if you’re co-signed onto a single loan together and your friend does not make his share of the required repayments, you will be responsible for the shortfall. If you don’t step up and make those repayments on your friend’s behalf, your credit rating will also be affected.
With Property Share loans, whilst you are able to separate your finances to a certain extent, you are required by the lender to guarantee each other’s loan. So, even with a Property Share loan, if your friend fails to pay his loan, you may need to sell your property in order to pay out your friend’s loan.
So, whilst there are advantages to buying a property with a friend, there are also risks. Perhaps the most important thing to have in place is the Co-Ownership Agreement. If you’re interested in finding out more about buying property with a friend or want to know more about Property Share home loans, get in touch with our experienced brokers today to ensure you’re on the right path to home ownership.