Is it a Good Idea to Purchase a Property with a Friend or Sibling?
Would you ever consider buying a property with a friend or sibling rather than a partner or flying solo?
It is a question that some prospective home buyers are asking themselves. And it would appear it is the Gen Z cohort that are contemplating this more than any other group.
ING Bank has reported today that from a recent survey, "..Gen Z -which includes those born between 1995 and 2009 - was the most likely generation to become property pals..'.
If prices continue to rise, joining forces with a friend or even a sibling can give you the benefit of pooling your resources to get the loan size you need, as well as to be able to afford the loan repayments.
It also means that you could potentially have a larger deposit than you would otherwise (and therefore hopefully avoid things like Mortgage Insurance).
Bingo. Perhaps you don't need to dismiss those home buying aspirations after all.
But is it actually a good idea?
Currently, for many banks, they are not set up for borrowers to be able to buy under a 'property share' arrangement. Traditionally when you apply for a loan, applicants are assessed on a single application as a couple or a single. Which works fine if you are actually a couple.
However, when it comes to buying with a friend or sibling, home buyers do not want their incomes and living expenses blended together on the application. Nor do they want their application set up a a 'couple', with a single loan in place. They want their autonomy; they want their own loan and their individual situation assessed in conjunction with their friend or sibling.
This is where a 'property share' loan comes in to play.
Property share works where applicants are assessed by the bank in their own right. There is no blending of income or expenses. Each applicant's income and living expenses will be assessed by the bank to determine if they can afford their individual loan against the security property.
For two friends or siblings, two individual loans will exist with their own repayments based on their loan size. These two loans will be secured against the property you are buying together. The bank will give you the best of both worlds; they will look at your combined borrowing power and capacity to repay (thereby allowing you to potentially borrow more than you could otherwise), while still giving you the flexibility to exist in your own right and on your own loan on the security property.
The good news is that banks like ING Australia specialise in these type of loans, together with a couple of other banks. It is not common place... yet. But it is possible.
Entering into a property share arrangement is not something that should be done lightly.
What if your circumstances change?
What if one party wants to sell and move on?
What happens if your friend or sibling gets themselves into a serious financial pickle and cannot afford their loan repayments?
There are certain requirements that need to be met under a property share loan arrangement, particularly when it comes to one party not being able to meet their loan repayments. The reality is that it will fall on the other friend or sibling to cover these repayments in addition to their own.
Further, of the banks that do consider property share, they don't all assess applicants the same way. This is particularly relevant when it comes to buying an investment property together. How each bank will factor in prospective rent and investment property expenses can ultimately determine how much a bank might lend to each of you.
Importantly it is having those hard conversations before you consider buying with a friend or sibling, as to what your 'plan b' is if, or when, things may change.
The face of property ownership is changing. The dream of property ownership in the coming years may look different to what it does today. Where do you fit in this property landscape?
It is very important to get advice and know exactly where you stand.
Please note this article is of a general nature only and is not intended as personal advice. Individuals should seek professional advice relating to their individual situation, before entering into any financial arrangement. Speak to your Mortgage Broker if property share is of interest.
