Co-buying property in Australia by pooling resources with family or friends is one way to boost purchasing power and tackle affordability issues stopping many first home buyers and solo buyers from entering the market. But without careful consideration, co-buying can be a minefield of legal battles that potentially ruins relationships. Follow these 3 tips to know what pitfalls to avoid and how to make co-buying work.
Tip 1: Choose your co-buyer carefully
When co-buying property with family or friends, ensure the relationship is mutually beneficial, based on a similar mindset and complementary goals for the property. One of the first decisions you’ll make as a co-buyer is deciding how the mortgage gets structured.
In an ideal world, each co-buyer would have a mortgage in their own name for their share of the property. However, most lenders will structure this type of mortgage as a joint loan, meaning each co-buyer is jointly and severally liable for the total loan amount. If one co-buyer is unable to keep up with their share of mortgage repayments, the other co-buyer is responsible for making ALL loan repayments.
As part of the mortgage approval process, lenders will want proof that each co-buyer can afford to repay the entire loan on their own. And that can prove challenging if one of the co-buyers is a low-income earner. Ensure you don’t get stuck paying back the loan on your own by choosing a co-buyer you trust.
Tip 2: Decide how the property will be owned
As well as deciding how the property gets financed, co-buyers will need to determine the ownership structure of the property. There are two types of legal ownership for co-buying which determines how ownership of the property is resolved should complications arise.
- Joint tenancy: All co-buyers are jointly and wholly responsible for the property together. If one owner dies, the other co-owner automatically gains the whole title. Each co-owner cannot sell or bequeath their share of the property to someone else; the property can only be sold by all co-owners together.
- Tenants in common: All co-buyers own a portion of the property separately and independently, and each can sell or bequeath their share of the property at any time. If one owner dies, how their share is distributed will be determined by the terms of their Will.
Get legal advice around which ownership structure would work best for you, and consider including into the agreement specific terms such as the option to buy out the other co-owner or having a say in who buys the share being sold.
Tip 3: Protect your own interests
Most important with co-buying arrangements is setting out a formal co-ownership agreement that can help formalize the details around what happens to the property in the future.
A co-ownership agreement should address:
- How property-related bills will be shared, and who is responsible for paying them.
- How each owner is entitled to access of the property if one or more owners don't live there.
- Who will maintain the property.
- How any disagreements relating to the property will be resolved.
- What happens if one owner wants to sell up or exit the arrangement.
Seek legal advice before entering this type of arrangement, to ensure your interests are protected in a co-owned property agreement should the relationship break down.
Protecting your interests
To find out how you can help your children buy a first home, or for more advice on teaming up with family to co-buy property in Australia, contact a Mortgage Express broker today.
The team at Mortgage Express are familiar with co-buying arrangements and can provide financial advice and guidance on lending solutions if you are considering co-buying property in Australia.
For financial advice that is tailored to your circumstances and situation, or if you have questions about co-buying, get in touch with a Mortgage Express broker.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
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