Buying property with a friend

Welcome to the finance update for the week ending 2 September, 2023.

It’s now officially spring time, which traditionally means football finals, spring carnival horse racing, and a slew of residential property listings for sale.

Whether or not it turns out to be a typical spring of property listings will become clearer in the coming few weeks. Many pundits are suggesting that there will indeed be a marked increase in the number of listings, but unlike a ‘normal’ spring, it is thought that many people listing will be doing so to try and reduce their debts in response to affordability issue

In this week’s newsletter, we take a look at a few must knows when it comes to buying property with a friend.

Buying a property with a friend has a lot of advantages when trying to get a foothold in the property market, especially with challenges relating to affordability. The following are some key considerations people need to be aware of before committing to this sort of arrangement.

Professionally Prepared Legal Agreement

Prior to finalising a property purchase with a friend, it’s important to execute a comprehensive legal agreement.

This step is crucial. Buyers should engage a solicitor who can draft an agreement meticulously, encompassing key details such as the breakdown of expenses, the protocol for determining the property’s resale value, the respective contributions to the initial deposit, the mutually agreed-upon minimum property holding duration before considering a sale, and a well-defined mechanism for addressing potential disputes. The agreement should encompass a wide range of potential scenarios to ensure your endeavour thrives under this cooperative structure.

Opt for Tenants-in-Common Title Ownership

The title ownership should be established as tenants-in-common. This specific arrangement allows each party to explicitly designate the recipient of their share of the property should unforeseen circumstances arise. In contrast, should ownership be established as joint proprietors, the passing of one owner would automatically confer their share to the surviving co-owner.

Importance of Similar Life Phases

While not an absolute necessity, it’s pragmatic for buyers to align themselves with a co-buyer who shares their life stage, such as age and income levels. This enhances the likelihood of shared location preferences, objectives, and comparable disposable income. Mismatches, such as a 30-year-old partnering with a 47-year-old, can lead to conflicting priorities in the near and intermediate future.

Dual-Party Arrangement Preferred

Although there’s no formal cap on the number of parties co-purchasing a property, a two-party arrangement is generally more advisable. The complexity of concerns tends to escalate as the number of participants increases, amplifying the challenges highlighted above and augmenting the potential for issues to arise.

Ensure Life and Income Protection Coverage

Given that each co-borrower assumes full responsibility for the collective debt, securing life and income protection insurance for every party is really important. This step provides assurance that in case of unfortunate events such as illness or death, the financial obligations can be met. Integrating evidence of adequate insurance coverage into the initial legal agreement is a sensible measure, safeguarding against scenarios where one party might bear the burden of the entire loan repayment.

Any changes in interest rates from last week are highlighted in orange.

Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.

Variable

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.

1 Year Fixed

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.