Risks and Rewards of Co-buying a Home

Historically, many Australians have opted to share the financial burden of buying a home with another person in order to save costs and reduce stress.

There are legal and non-legal risks associated with buying a property with a family member or friend that all Australians should know about first. If your client has approached you for a loan with a view to co-purchasing a property, following are some risks and facts they need to keep in mind when navigating the property market with a family member or friend.

First, all purchasers need to be aware of their ownership rights. When buying a property with another person, Australians have two options. They can either be ‘joint tenants’ or ‘tenants in common’.

Buying a property as joint tenants limits what an owner can do with their share of the property. They can’t simply sell or bequeath their share of the property to someone else. As joint tenants, if you buy the property together, you sell the property together. If an owner passes away, that person’s share transfers completely to the other owner.

So, people should be aware that if one joint tenant wanted to sell and the other one didn’t, they would have to go to court to force the sale of the property.

On the other hand, tenants in common split ownership of the property. If one person owns 50% of the property, that 50% is theirs and they can do what they want with it – including selling their share at any time.

What people need to know is that, even if you own a property as a tenant in common, unless you agree otherwise you have a right of occupation for the whole property. So, if one owner transferred or sold their share, the other person could end up owning and potentially living in the property with someone they may not otherwise have chosen to.

Before anyone considers buying a property with a friend or family member, it would be prudent to enter into a separate agreement about the mechanisms to be put in place if only one party wants to sell. This could include buying the other person out, having a say in who purchases the share, and so on.

As joint tenants, if you buy the property together, you sell the property together. If an owner passes away, that person’s share transfers completely to the other owner.

It’s also important to ascertain each person’s liability if the co-owner defaults on the mortgage.

Generally, a mortgage is secured for the whole property, regardless of the relative ownership rights. So, if one party defaults on their mortgage repayments, the other party might be at risk of the bank foreclosing on the loan and seeking to sell the
property. Buyers should take advice from a financial adviser or mortgage broker about the options available to protect their interests.

When it comes to handing over the deposit, couples are often ‘gifted’ funds by a parent to assist them in getting into the property market. If the relationship ends, the ‘gift’ may suddenly morph into a ‘loan’, which gives rise to added complexities in a family law dispute.

When going down the path of gifted funds, you should make sure everything is clearly documented. If it is intended that the money will be repaid now or in the future, this should be set out in an agreement. There is also the option of registering the ‘loan’ (assuming it is to be repaid) on the title of the property.

For those who have been gifted money by a family member or friend to assist with a property purchase, and then they enter a relationship, their financial interest in the property can be further protected by entering into a financial agreement with their partner before living together. This type of agreement is intended to keep that property separate from any other assets acquired, should the relationship subsequently break down.

Meanwhile, if a couple decides to buy a property together, either as joint tenants or tenants in common, they should think about entering into a financial agreement as to how the property will be dealt with if the relationship breaks down, to avoid expensive and lengthy court proceedings down the track.

Anyone looking to purchase a house or apartment with a family member or friend need to understand the legal and non-legal risks involved before diving into the world of property.

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