June 07, 2010
For those struggling to raise the necessary deposit to fund a property purchase, combining financial forces with another person or people may offer a solution.
Cause for concern for many hopeful property owners is the reported 11.9%* rise in property prices nationally in the 12 months to April 2010. On top of that, mortgage insurers and lenders have tightened criteria around home loan approval which has resulted in greater deposit requirements and the possibility that more potential buyers will be priced out of the market.
Mortgage Choice senior corporate affairs manager, Kristy Sheppard said, "Property co-ownership offers buyers a quicker fix, albeit one that needs to be examined from all angles and executed with great care. It enables a borrower to share the financial and emotional responsibility of long-term debt with another so, together, all parties enter the market sooner."
"According to our Recent First Homeowners Survey**, 66% of buyers pooled their resources with another in some way. More than 3% entered into a co-ownership agreement to purchase property with a family member, friend or work colleague while over 2% bought using a monetary gift provided by parents or with their parents acting as guarantor on the loan. 60% purchased with their partner and 1% said they did so with someone other than a friend, family or colleague."
"Sharing mortgage commitments with one or more people not only helps borrowers buy sooner but it can also ease the challenge of applying for a home loan.
"The majority of lenders now require borrowers to contribute at least 5% to 10% of the property purchase price, with much of that needing to come from genuine savings. Combining funds with another increases the deposit amount and often helps buyers to enter the market with greater borrowing capacity.
"In any case, entering into a financial commitment with another person can put considerable strain on a relationship regardless of how strong it has been in the past. For this reason it is important to seek independent legal and financial advice prior to signing a co-ownership agreement, loan contract or property purchase contract. All parties must fully understand their rights and obligations as well as the plans each participant has for the property and their loan repayment strategy.
"No matter who you intend to purchase with, organising finance should be a well thought out decision. Choosing a loan type and lender suited to your unique situation, with all the flexibility and features you and your co-owner/s need, may save you time off your loan term and interest off your loan amount."
* RP Data-Rismark Hedonic Home Value Index April 2010
For further information or to arrange an interview, please contact:
(02) 8907 0472