After a decades-long housing boom, many Australians feel they’re faced with a difficult choice: rent forever, or buy a house on the isolated urban fringe.
By dramatically cutting the costs of buying a home, co-ownership offers an alternative – one that helps buyers get their foot on the ladder in suburbs that would usually be well out of reach. However, it’s not without its challenges.
What is property co-ownership?
Property co-ownership is when two or more people share the ownership of a property.
Simply put, this means:
- pooling your money with others to put a deposit down on a home
- combining your borrowing power to borrow the rest from a loan provider
- paying off the mortgage on your home instead of paying rent (for owner occupiers) or earning a stream of rental income (for investors)
Co-ownership can help you buy properties that you couldn’t normally afford. Picture: Getty
Sharing has many advantages. Firstly, it lets you split the cost of running a home (e.g. rates, repairs and renovations).
Secondly, all the costs of purchasing a home (e.g. purchase price, legal fees, stamp duty, building reports etc) are split between the co-owners. This means you can enter the property market at a fraction of the cost you’d expect to pay if you were buying on your own.
And with a number of people paying off the mortgage, you’ll usually pay it off much faster.
How does it work legally?
There are two main forms of co-ownership: tenancy in common and joint ownership.
Tenancy in common is a principle of property law in Australia that allows two or more people to have a defined share of a property and to transfer their interests independently.
Should one of the tenants die, their interest will be bequeathed to a beneficiary of their choosing.
Tenancy in common is a more flexible form of property ownership as it allows parties to own land in equal or unequal shares. Co-owners lay out the exact terms of their interests, rights and obligations in a co-ownership agreement.
The other form of co-ownership is joint tenancy, which is traditionally used by couples. Join tenants own the entire interest in the property, but as individuals, they own nothing.
Joint tenants also have rights of survivorship. Which means that, if one tenant dies, the surviving joint tenant assumes ownership of the whole property.
Co-owners should sign a co-ownership agreement before buying a property to avoid any problems should circumstances change. Picture: Getty
What are the risks?
The risks largely stem from the fact that co-owners have joint and several liability.
Co-borrowers are jointly liable for each other’s debts if they are using the co-owned property as security for their mortgage. And so, if one party defaults on their mortgage repayments and the other parties do not step in to pay the amount due, every owner’s credit rating will be negatively affected.
Other disputes may arise over:
- whether to sell the house
- whether to refinance
- whether a party can be bought out
- how to split income and costs associated with the property
- mortgage repayments
If you want to move out or sell but the other co-owners want to keep hold of their interests in the property, you’ll need to find a buyer for your part ownership, which is generally more difficult than finding a buyer for an entire property.
As a result of the potentially high costs of changes in co-ownership, it’s highly recommended that you and the other co-owners sign a co-ownership agreement before purchasing your property.
What is a co-ownership agreement?
A co-ownership agreement is a legal document which sets out the rights and obligations of each person with a share in the property.
Among other things, it should lay out who is entitled to reside at the property, who is responsible for making mortgage payments and paying for maintenance, and what happens in the event of a death or bankruptcy.
Without a co-ownership agreement, it can be very costly to litigate what was intended to occur between the co-owners in the event that one sells their interest or defaults on their loan.
PodProperty currently charges $450 per co-owner for their agreement.
If a co-owner defaults on their home loan, you could be held liable. Picture: realestate.com.au/buy
Are co-owners still eligible for grants and other government assistance?
Co-owners can still take advantage of the Federal and State Governments’ various grants, including First Home Owners Grants, First Home Saver Accounts and stamp duty concession. The amount you can save depends on your individual situation and where you’re buying.
What else do I need to know when co-buying?
Group finance
A joint mortgage is a home loan given to more than one party based on their criteria together, rather than individually.
Groups of property buyers often apply for a joint mortgage because it allows them to combine their incomes in order to qualify for a higher loan amount than would be possible if they applied individually.
All the purchasers’ names will go on the mortgage and title deed, and the co-borrowers will be jointly and severally liable for each other’s debts.
Conveyancing
Conveyancing is the legal process of transferring ownership of property from one person to another.
In the case of co-owners, the property is transferred to your name and the names of those with whom you are buying. As part of this process, the lawyer will undertake a range of inquiries relating to the property, and carry out a number of checks which can take from six to eight weeks to complete.
These inquiries are normally completed before the settlement date agreed upon in your contract of sale.
A solicitor or dedicated conveyancer will carry out the conveyance of your property once you have exchanged contracts.
Talk to the specialists
Co-buying a property is far from simple. And so you should always seek expert advice before signing on the dotted line.
This article was originally published on
19 Sep 2018 at 9:00am
but has been regularly updated to keep the information current.