It’s no secret that a competitive real estate market that has contributed to rising property prices and the ongoing cost-of-living pressures coupled with a volatile rental market has prompted people to think outside the box when it comes to getting a foot in the door of the property ladder. That includes considering buying property with friends or extended family.

Whilst pooling resources with friends or family will help increase your borrowing capacity and therefore purchasing power, there is perhaps a greater level of due diligence required than when purchasing solo or with a spouse to ensure you and your finances are adequately protected.

Who are you buying with?

If you enter a co-buying property purchase with a friend or family member, it is a good idea to make sure you are in alignment in terms of your goals for the property purchase. In addition, you also need to appreciate that when purchasing a property and obtaining  a mortgage together your financial position becomes enmeshed so having implicit trust in this person is paramount.

Whilst you can agree between yourselves to have your own individual loan accounts that you’re responsible for paying, most lenders make it a requirement that all loans are to be in joint names. That means, if your co-borrower is unable to make their repayments, you will be required to do so as their loan is essentially your loan too in the lender’s eyes. It’s therefore very prudent to only enter into a co-ownership scenario with someone that you feel trustworthy.

Conversations with friends

It would also be adviseable to have some “what if” conversations with your co-owner. Like – What if someone gets into a relationship and wants to live with their new partner?  How does the division of labour be split with regards to maintenance and upkeep? What if someone whats to renovate but the other has no means to contribute to costs? How will dsiputes be resolved if a decision cannot be made regarding the property? Is each party adequately insured so as to protect the other owner should an unforseen event occurs?

These might seem like confronting and uncomfortable things to ask but it is important to have a framework in place to overcome obstacles as they occur as it is highly likely many or all of those points will be raised at some time.

How is the property being owned?

It is imperative to determine the ownership structure of the property when signing a contract in joint names. There are two types of ownership for co-buying.

• Joint tenancy – This is where all co-buyers are jointly responsible for the property together. If one passes away, the other owner gains the whole title and each owner cannot bequeath or sell their share to of the property to someone else.

• Tenants in Common – All co-buyers own a share of the property separately and can sell or bequeath that share to anyone at any time. If one owner dies, their share is distributed as per the terms of their Will.

It is advisable to obtain legal advice to determine what structure would be most suitable and consider including into the agreement certain terms such as the option to buy out the other co-owner or having a say in who buys their share in the event they decide to sell.

Purchasing a property with a friend or family member can be a viable option to get a kick start into the property market however it does require due diligence. Our mortgage brokers can be a great starting point to get your ducks in a row and put you in touch with the right professionals to speak with to get you on your way.