The RBA cash rate might be lower than ever, but the Australian property market continues to be harder to pierce than the Ice Wall. Game of Thrones references aside, recent figures do show that young Australians are finding new and interesting ways to afford the homes of their dreams.
But with house prices reportedly at a record high, buying a home on your own might no longer be the best financial decision.
What if I told you that you could buy a home at less than half the asking price?
How to buy a home with a friend
Allow me to introduce you to property co-ownership. This is where two or more people buy the same home. Now, you might be wagging your finger at your computer screen thinking, ‘This is what married couples do all the time, Andrew! This is not new information – go home!’ On the contrary, it’s not the same as buying a home with your spouse to raise the kids and buy a dog in. So I’ll forgive you for that one. Because property co-ownership is different from your regular joint ownership mortgage.
Let’s say Stephanie and Tim want to buy their first house. They’ve been married for two years and renting in Bondi, but now they want to buy a home in Menai to grow their family in. So they go to a great Mortgage Broker, and they commit to a regular mortgage. They have one account. One mortgage. One lump sum between them. Joint ownership.
On the other side of town, we have Jess and Sam. They’re single friends in their early 30s, and they each have burgeoning careers and dependable incomes. They’re sick of renting in Newtown and have grown tired of the party scene, so they don’t see the point in paying for a postcode anymore. They each want to own a home, but it’s just not possible on one income.
But hey – they already live together and trust each other to take out the trash. Why not buy a home together? If Jess and Sam want to buy a home and continue sharing the same Netflix account, they could take out a Property Share Loan.
What is a Property Share Loan?
If our house-sharing trio want to buy a home together, a Property Share Loan can make their home-owning dreams happen. Whereas joint home ownership – what Stephanie and Tim have – means you have one mortgage with one share of the property, Property Share Loans allow you to have multiple, uneven shares and loans in a property. This is called property co-ownership.
For example, Jess and Sam will each have their own home loan under against the same property, and will each be responsible for paying their share of the mortgage. These shares could be split evenly, or unevenly. But with two incomes, you’ll be able to pay off the mortgage much sooner.
Why you should get a Property Share Loan with your mates
- You’ll be able to afford a home quicker, as you’ll be able to save with your friends.
- You and your friends can start investing in property sooner, and each earn an income from rent charged to tenants if you don’t want to occupy the property.
- Own property together whilst keeping your finances separate. (It’s worth noting however, that you will need to guarantee each other so you are still responsible if your friend goes AWOL.)
Watch out! You need a property co-ownership agreement
There are a few sticky situations that could pop up if you don’t thoroughly educate yourself about Property Share Loans.
What if Jess loses her job and can’t afford her repayments anymore? If Jess defaults on her mortgage repayments, and Sam can’t cover for her until she’s back on her feet again, everyone’s credit ratings will take a nasty hit. Thanks a lot, Jess.
Or what if Sam wants out, and wants to use her share of the property as an investment?
Or, what if Jess and Sam just stop getting along? What happens then? You can’t divorce your mates, but if you get a co-ownership agreement organised beforehand, you’ll have a legal, binding document that sets out everyone’s obligations. You’ll have something to refer back to should disputes occur.
Co-owning your first home has many advantages. Not only will you be able to keep splitting the cost of utilities, but you’ll also be able to split the cost of maintenance between multiple incomes. The cost of owning a home becomes significantly cheaper, and much more accessible.
Property Share Loans make it possible for young Australians to enter the housing market at a fraction of the usual cost than if they were buying on their own. But like any mortgage, all your options should be considered before committing.
Are you thinking of buying a home with your friends? The team at Mortgage Guy know the ins and outs of Property Share Loans.
Just ask us – we’d be happy to help you step inside your dream home sooner!