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Buying a home

Property co-ownership: The pros and cons

2 March 2021

Co-buying a property with friends or family can seem like an attractive idea. It means you’ll have more money to pool together, offering you better options for landing that dream property, right?

Before you jump headfirst into property co-ownership, there are some important things you may want to consider. We delve into how it works, the potential pros and cons, and a few other things you should know before making a decision.

What is property co-ownership?

Property co-ownership is when two or more people purchase a property together, and share the ownership. You can choose to buy a property with your partner, bestie, sister, colleague — whoever. The important thing is that everyone understands and agrees to what’s involved with sharing ownership of the property, especially if you’re sharing a home loan.

That includes the fact that each owner is usually equally liable for repayments, meaning you want to make sure you can trust that whoever you co-own with won’t fall through on their contribution. If someone does, the responsibility will fall back on you to cover the full debt yourself. Before considering purchasing a property with another person, it’s advisable to seek legal and financial advice to make sure you understand the risks.

Property co-ownership options available in Australia

In Australia, there are a number of options for multiple people looking to buy a property together. Two commonly-considered options are as ‘tenants in common’ and as ‘joint tenants’. If you choose one of these, it's important to understand that all owners are likely to be equally liable for a home loan.

Tenancy in common

When two or more people buy a house together as ‘tenants in common’, they each own an individual share in the property. Those shares don’t need to be equal. If one tenant dies, their shares go to whomever they’ve left it to, which doesn’t have to be one of the original tenants in common. This means that you could end up owning a share in a home alongside someone you don’t know.

With tenancy in common, individuals are usually even allowed to sell their share of the property. This can make it an attractive choice for friends looking to co-own property together, but it also means a lot of serious thought should go into making an agreement beforehand.

Also, if one owner decides they want to sell their share (to another co-owner or any other person), the lender is likely to require the loan to be refinanced into the new owners’ names. If the new owners can’t afford the loan, this could mean the property has to be sold.

Tenants in common should agree on:

  • what will happen if someone wants to sell their portion
     
  • how much of the property each person individually owns, and
     
  • what happens if someone can’t meet their payments.

Joint tenancy

Joint tenancy is the type of co-ownership most couples enter into. It means that both tenants own the property together, but no one has an individual ‘share’. If one tenant dies, the other inherits full ownership.

Other ways to end a joint tenancy include:

  • selling the the property to a third party
     
  • formally agreeing to switch from joint tenancy to tenants in common
     
  • officially transferring full ownership from one tenant to the other (in this case, the person receiving full ownership will need to prove to the lender they can afford the loan and refinance it in their own name).

Pros and cons of property co-ownership

As with any big financial decision, it can be worth weighing up the potential pros and cons of co-buying a property.

Pros

  • It could be more affordable than buying a home as an individual, because you will probably have more money to pool together.
     
  • You could be able to borrow more as a group, compared to getting a home loan on your own, which can increase your housing options.
     
  • It can be a stepping stone into the property market.

Cons

  • You could end up shouldering the debt yourself, if one or more of your partners falls through on their payments.
     
  • There is more risk when borrowing for a home with other people as you are equally liable for the debt. This could impact your ability to borrow in the future and if things go wrong, could impact your credit rating.
     
  • Things can get complicated if conflict arises between the owners.

How to apply for a home loan with multiple owners

In terms of applying for pre-approval or a home loan, most of the process is the same as it is for individuals. However, there are some key differences to keep in mind.

  1. Everyone’s financial information is likely to be on the same home loan application, meaning income, assets, etc. are visible to each borrower.
     
  2. Under the Banking Code of Practice, banks have to consider whether each joint borrower receives a ‘substantial benefit’ from the loan. If a co-borrower will not receive a substantial benefit from the loan, the bank will not approve that person as a co-borrower, unless the bank:
    (a) has taken reasonable steps to ensure that the co-borrower understands the risks associated with entering into the loan, and understands the difference between being a co-borrower and a guarantor;
    (b) has taken into account the reasons why the person wants to be a co-borrower; and
    (c) is satisfied that the co-borrower is not experiencing financial abuse.

Co-ownership can be tricky to navigate. Independent legal and financial advice can help make sure everyone understands their obligations and responsibilities.

If you have questions about home loans, Suncorp Bank’s friendly and professional lending experts can help you understand your options and their consultations are 100% obligation-free.

 

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