The traps of love and lending
Breaking into the property market can be a tough ask, so many Australians are teaming up to realise the dream of home ownership.
19 October 2018
Australians are increasingly choosing to team-up for a better chance of getting onto the property ladder. However, while there are obvious benefits to pooling resources for a property purchase, you could do serious damage to your finances and your relationship without careful diligence.
Sharing the liability
Given the price of homes today, buying property with a partner makes a lot of sense. Two incomes are better than one when it comes to getting a loan.
However, it's important to be aware of the financial history of your partner. Credit scores can affect the success of any loan application, so if one partner has any credit defaults or loan arrears, it's best to know this well before applying.
Doing the deed
When purchasing property, it's the contract of sale that specifies the ownership structure. There are two main options for ownership, and what's ideal will largely depend on your relationship with your partner.
- Joint tenants
This arrangement is most commonly used by spouses purchasing together in equal shares. This is because when one owner dies, their share automatically passes to the co-owner.
- Tenants in common
With this arrangement, if one of the owners were to die, then their share will pass onto their beneficiaries rather than the other owner. Each owner is able to sell or give away their interest in the property, which doesn't have to be in equal shares.
Get legal advice
If you are buying property as tenants in common, creating a formal ownership agreement is a good idea to avoid confusion should any issues arise in the future with your partner.
It’s also really important to understand exactly what you are liable for should anything go wrong. Regardless of the ownership structure – whether it is as joint tenants or as tenants in common – from your lender’s perspective you are both jointly and severally liable for the full loan secured against the property.
It doesn’t matter if you only own half the property – your lender has the right to pursue you for the full amount of the mortgage if your partner defaults. That is why it is really important to carefully consider buying property with someone other than your spouse.
Your mortgage broker can also assist with any questions about how the loan is structured and your responsibilities under the mortgage. Speak to a Liberty Adviser today.