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Is co-ownership right for you?

Buying through co-ownership is quickly becoming a popular strategy for those hoping to enter the property market but without the capacity to do it alone. Through pooling resources with a friend or family member you can increase your buying power and enter the market sooner.

There are a number of other benefits to entering the market this way. A joint purchase can help ease the deposit and all costs can be split, such as stamp duty, legal fees and maintenance. However, there are a number of pitfalls that you need to be aware of when purchasing via co-ownership. Importantly, you need to understand the below before you enter into this type of purchase:

Timeline – It can take up to 10 years to realise significant growth from a property. Do you and your purchasing partner have the same overall goals and objectives?

Trust – Although you will only have to make repayments on your half of the loan, you are completely tied to the other purchasers’ financial conduct. If they fail to make their repayments, the bank will come chasing you for their half.

Borrowing Power – You may think you only have ½ of the debt to worry about, however in the banks eyes, they assess you as being responsible for the entire debt. This means that should you want to keep this property and purchase another one, you will need to show that you can service 100% of the debt against property 1 and whatever debt is required against property 2.

Utilising the Equity – A common strategy is to purchase a property then use the growth in its value (equity) over time as your deposit on your next property. This is all well and good; however having another person involved in approving the equity release could cause complications. What if you both want the equity at the same time and there isn’t enough?

Legal – Although the transaction may be made as ‘Tenants in equal shares’ this covers how much you own but doesn’t cover what should happen in the event of certain circumstances. A legal consultant can draw up an agreement between the two buyers outlining the following:

  • If one owner dies, does their half go to the surviving owner or their estate?
  • What happens in the event one owner wants to sell and the other doesn’t?
  • How do you determine ‘market value’ of the property at any point in the future?
  • If the property is a rental investment, who is responsible for repairs and maintenance? How are these costs covered?

The good news is these types of purchases are becoming more and more common so there are pretty standard legal docs that can be used. A few of the big banks also have designed lending products especially for this situation which make repayments easier to manage separately.

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