Relationships and mortgages

Getting into the property market can be tough, particularly if you are trying to do it on your own. Considering property values and the time taken to save a 20% deposit, it’s little wonder that four out of five Australians are pooling their resources to speed up their entry into the property market.

While the majority of these are in a committed relationship (marriage or de facto) there are many others who are purchasing with a parent, sibling or friend in order to climb the property ladder.

These relationships do however bring about additional considerations, particularly given your lives may not travel in tandem for a long period of time.

So what factors need to be considered when buying with family or friends?

While purchasing a property with someone will generally allow you to enter the property market earlier, improve the quality or location of the property purchased or allow the purchase of a newer property, there are a number of issues that you need to consider upfront to ensure that the purchase achieves your desired outcomes.

Be upfront at the beginning

Let’s be realistic – things can and do change. What happens then?

To overcome this you can break down your ownership into regular review periods, for example every two years, at which time you will revisit your ownership and intentions. This will provide a degree of certainty and allow you to make your own plans with the ability to change them some time in the future.

Structure your loans appropriately

While you might see your respective loans as being separate, a lender might not necessarily see it this way. Although idealistically each loan should have separate security, it is likely the property you purchase together will be used as security for both loans with the consequence being if one partner defaults you will both be liable for the full amount of the loan. Therefore a cross indemnity can be used to minimise the potential impact.

Consider the consequences

Even if you have separate loans and they are both secured against the same property, lenders will consider you jointly liable. Accordingly, if you want to buy an additional property with someone else or on your own, your new application may be assessed on the basis that you owe the full amount outstanding on the existing property given you are jointly liable.

Plan your exit

Agree up front how this is to occur. When one party wishes to sell, does the other party have the opportunity to purchase their interest first? How is the price determined – the average of two valuations etc?

Consider the title registration

There are two types of co-ownership titles in Australia dealing with proportional interests. ‘Joint tenants’ where your interest automatically passes to the other owner on your passing or ‘tenants in common’ where your interest will be distributed via your will.

If you want your interest to go to someone else on your passing, tenants in common is the recommended co-ownership title. The percentages do not have to be a 50/50 split, but are dependent on the individuals’ contributions. It is also possible for more than two owners to purchase a property.

Document everything

Recollections can differ. If your review is documented and signed then this will help provide clarity when there is uncertainty. You may want to re-document details at each review period.

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