Property prices in Australia are high – particularly in capital cities. While entry to the property market is generally within reach of many, the co-ownership model provides access to property with a shared obligation towards repayments. There are many ways to own a property, including in your private name, as a company or even as a trust asset. Each structure has benefits and disadvantages, so it’s best to speak with a legal, tax or financial adviser as to which structure will work best for you.
There are typically two options in terms of structure – joint tenancy or tenants in common.
Joint tenants own an even share of the property. If one party dies, the surviving tenant/s take the whole property. Advantages of this structure include the following:
- To purchase a higher priced property than on a single income,
- To share your partner’s deposit whereas you may not have enough deposit,
- Your single income is not enough to service the loan,
- To share resources with another partner to build equity to invest in more properties
- To increase your borrowing capacity to purchase a bigger or better quality property.
- All property expenses are shared between co-owners
Tenants in Common
Tenants in common can have an unequal distribution of ownership. Each owner can bequeath their interest in the property through their will to a beneficiary rather than another co-owner. Advantages of this structure include the following:
- To give more flexibility form of property ownership (you may sell your share in the property).
- To divide the equity share to the deposit contributed.
- To allow shareholders to purchase unequal shares in a property.
- To invest in a property with a small equity percentage in an investment.
It’s not uncommon for friendships to sour, so an appropriate and agreed-upon exit strategy should be ratified by way of a clear agreement. You will also want to consider the following:
- Individual contributions by each owner, including deposit and purchase price.
- Owners’ borrowings and who is responsible for the repayments.
- Who resides in the property and on what basis, and how much rent should be paid and scaled.
- What to do in the event one owner wishes to sell.
- How to allocate the proceeds of the sale.
- Obligations regarding maintenance of the property.
- What to do in the event of a dispute.
- The insurances each owner needs to maintain.
To ensure you set a formal agreement in place you should consult an appropriate professional. Bottom line: you should always have a clear contract in place to align buyer objectives.
First Home Buyer Grant
You will still be able to receive the First Home Owners Grant (FHOG) if all co-purchasers on the mortgage are eligible to receive the FHOG. If one of the co-borrowers has owned a property prior then the other joint purchaser may not be eligible, therefore you should seek appropriate guidance from a professional, or consult the appropriate Government authority.
Loan Qualification & Borrowing Capacity
Qualifying for a loan with another borrower isn’t particularly difficult, and may be easier as you’re better positioned to service the loan.
- Deposit. Generally requires as little as 5% deposit made up of genuine savings.
- Good Credit History. Your credit file clear of defaults and other higher-risk credit inquires.
- Stable Employment. Stable employment with a demonstrated work history between 3 and 6 months is preferred.
- Income. Evidence of an income necessary to service the loan should be provided.
- Purchase Acceptable Property. As with any type of property, a bank may place restrictions on the type of property you purchase, and place specific restrictions on property in certain postcodes.
Your borrowing capacity, like any loan, is based on your ability to service the product as determined by specific bank criteria.