How co-ownership could help you buy a property in 2021

With property price averaging $1.2M in affordability has become an issue in our biggest east coast city, Sydney, and with Melbourne and Canberra heading towards unaffordable as well , the great Australian dream of property ownership is becoming all but a pipe dream for many millennials in these cities. 

That’s why a growing number of aspiring property owners are looking at alternative pathways to crack the market. One such solution is through co-owner partnership with someone other than their spouse.

Australian residential property has historically performed well, using Sydney as an example, the median house value in 1990 was $194,000, in 2000 it was $287,000, a decade later $643,000 and at the start of 2021, $879,299.

In the past property ownership was considered a right of passage, but today it getting out of reach for many working Australians and that why, buyers that don’t have the resources can increase their buying power by inviting a friend or family member to become a co-owner.

There are a number of advantages when it comes to buying via co-ownership as well some pitfalls. Let’s look at few;

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Positives of co-ownership

·       Having multiple purchasers will mean that there are more people contributing towards the deposit, which can be a great advantage for buyers with limited savings.

·       Property ownership can be split according to individuals deposit contribution by registering the title as ‘tenants in common’.

·       Mortgage repayments can be split according to property ownership ratio.

·       Borrowing capacity increases with multiple incomes servicing the loan, allowing you bigger budget to a property.

·       The costs associated with the purchase will get spread among the owners. Stamp duty, land taxes, conveyancing costs and maintenance fees can all be essentially divided between the buying partners.

Negatives of co-ownership

·       It is essential that you pick your co-owners carefully, they need to be trustworthy and capable of meeting their commitment to the mortgage.

·       Not all lenders will accept someone other than your spouse as a co borrower if their property ownership ratio is less than 25%.

·       Future borrowing capacity as individuals may be negatively impacted as lenders will apply the full debt repayment against your single income.

·       Circumstances may change for co-owners, for example if two thirds of a co-ownership structure is couple and they decide to split, things could get very messy.

Relationships, no matter how trusted can go sour and that is why, it’s important that a firm legally binding agreement is established prior to purchasing a property regarding how long the property is held, who all will reside at the property, how expenses will be split and under what conditions it is sold.

With the right approach, co-ownership can make the dream of property ownership a reality years earlier than many would-be buyers could have hoped to purchase a home. And yes, not all co-owners need to be owner occupier, in fact, it be ideal if ownership is a mix of owner occupier and investor.

Finally, if you thinking of buying property under a co-ownership agreement, consider the associated pro and con together with sound legal advice before deciding if this is the right pathway to property ownership for you.

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This article does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.