November 19, 2012
In love with property? Buy with others to get a foothold
Australians who have a love for property and a desire to enter the market sooner may benefit from partnering up with another to purchase, according to Australia’s largest independently-operated mortgage broker, Mortgage Choice.
Bucking the trend of traditional shared ownership, de-facto couples, friends, relatives and work colleagues are joining financial forces to buy their first property in co-ownership with one another.
Local Mortgage Choice owner Andrew Heath said, “Buying property with someone you trust in a co-ownership agreement can help ease the challenge of applying for, and repaying a home loan. It may also enable first timers to enter the market sooner and to take advantage of low interest rates and a wide range of competitive home loan deals.”
“According to Mortgage Choice’s latest first homebuyer research, 66% of first time buyers planning to purchase property before March 2013 will not be buying on their own*.
“Sharing a home loan commitment with one or more people provides borrowers with the opportunity to split the cost of the property and the associated expenses, so that loan repayments are noticeably less than what they would be if they were buying solo. Another benefit is if the combined funds equate to a deposit of 20% or more of the purchase price, it will negate the need for lenders’ mortgage insurance.
“Financing a co-ownership agreement is not all that different to traditional borrowing. Lenders will still look at the income, expenses, assets and liabilities of each borrower and expect regular lending criteria to be met such as good savings habits, steady employment history, clean credit record, etc.
“If the borrowers are not a ‘couple’, some lenders may assess their loan approval based on higher, individual living costs.
“In a co-ownership agreement the share of ownership can be split; that is rather than all parties owning all of the property together, they may own a percentage depending on their financial contribution. They may also be able to sell or transfer their share without having to sell the whole property.
“Another advantage is lenders will allow the co-ownership loan to be structured in a way that allows each party to make a separate repayment to cover their share. However, most lenders will require all borrowers to be responsible for the entire debt. This means if one party is unable to contribute to the loan repayments on their share, the remaining party or parties will be expected to make up the difference.
“That is why, as with any major financial transaction, it is important to seek independent legal and financial advice prior to signing a co-ownership contract. All parties must fully understand their rights and obligations under the co-ownership agreement.
“Property co-ownership certainly can help make property ownership more affordable for potential buyers assuming it is properly planned from the beginning. Clearly putting the ground rules in place from the start, preferably with the assistance of a solicitor drawing up a formal agreement, will go a long way to ensure all parties acknowledge their responsibilities and agree on unexpected contingencies.”
For more information contact Andrew Heath & his team on 02 4578 9904 or click here to "Book a Meeting"
* Mortgage Choice 2011 Future First Homebuyer Survey