Buying property with a friend

Buying a property may be a smart move, particularly if prices and interest rates are low. If you are worried about how you could own a place of your own, buying with a friend may be one way to become a home owner.

House prices, uncertainty in the economy, and tighter lending standards may make it a significant challenge to enter the housing market.

Even falling property prices and Reserve Bank of Australia interest rates at a record low of 0.75%¹ may leave owning a home out of reach for many.

Saving a 20% deposit to buy property alone may sound intimidating.

But the traditional model of home ownership may be changing, and one of option is buying property with a friend.

Is a house affordable?

While the Australian dream of home ownership remains alive and well, housing affordability may present a barrier for many who are trying to save for a home deposit.

Brisbane property prices rose during the December 2019 quarter,² with the median house price at $577,664. Brisbane units fell 3.4% with the median unit price $377,549.

Brisbane median house price growth is forecast to average 6.4% per annum over the next three years, taking the median house price to $660,000 in June 2022.³

Sydney and Melbourne have continued to rebound.²  House prices in Sydney jumped 5.7% in the December quarter, placing the Sydney median house price at $1.142 million. In Melbourne, the house price jumped 5% to a median house price of $902,000.

Around 1 in 5 consider co-ownership

Nearly one in five Australians surveyed by CoreLogic in 2017 (17%) said they would consider buying a property with friends or family.⁴

However, while still looking to share the costs of home ownership in order to enter the market, the 2019 CoreLogic report⁵ found it was largely the “bank of mum and dad” that young people were turning to.

Whether it is with family or friends, it is worth considering the pitfalls as well as positives regarding co-ownership.

Risks of buying with friends

Some of the risks of joint ownership that you should consider before becoming a home buyer include the long-term implications:

1. You are financially tied to another person. If you don’t actually stay close friends, things may get awkward. Both of your names remain on the title deed for the property, but you have to decide who will pay the mortgage, who will stay and who will go.
2. Joint liability – you remain responsible for the whole debt, not just your half. This creates two problems:
• If one party can’t pay their share of the monthly repayment, you have to find some extra cash to pay it.
• Lenders view you as owing the whole loan balance. Even if you and your friend both pay your home loan on time every month, you may not be eligible for other finance such as a credit card, car loan, or mobile phone contract.
3. If your friend fails to pay a monthly repayment on time, you risk losing the property and it damages your credit rating, making it tougher to get loans or credit in the future.

Your checklist before you buy a house with a friend

It may be helpful to answer these questions before committing to a joint loan.

1. Does your friend and potential co-purchaser have similar money habits to you? You can lower your risk of future hassles if you team up with someone who is financially responsible, likely to make their repayments on time and save a little extra for unexpected bills.
2. Have you documented the terms of your partnership? This may help prevent misunderstandings and costly disputes. It can also protect your friendship, as well as your share of the bricks and mortar.
3. Have you obtained professional legal advice and financial advice? You may wish to discuss details with your legal representative such as:
   • Length of time you intend to hold the property.
   • Whether or not you’ll renovate or improve the property during that time (and, if so, how much you’ll spend on it).
   • How costs of maintenance and unexpected repairs or expenses will be met, such as opening a “sinking fund’’ account and both contributing a set amount each month.
   • Course of action if one of you wants to leave before the loan is repaid, or if one of you can no longer afford to pay their share.
4. Do you have income protection insurance? Consider what will happen to your mortgage repayments if you were off work due to an accident, serious illness or injury.

1. Reserve Bank of Australia, 6 November 2019, accessed 20 November 2019 at https://www.rba.gov.au/statistics/cash-rate/
2. Domain, December 2019, Domain House Price Report, accessed 20 February 2020 at www.domain.com.au/research/house-price-report/december-2019/
3. BIS Oxford Economics for QBE Lenders’ Mortgage Insurance, 2019, The QBE Australian Housing Outlook 2019-2022, accessed 15 November 2019 at www.qbe.com
4. CoreLogic, May 2017, Perceptions of Housing Affordability, accessed 15 November 2019 at www.corelogic.com.au/resources/pdf/reports/housing-affordability/2017-05-CoreLogicHousingAffordabilityReport_May2017.pdf?language_id=1
5 .Media Release, 27 September 2019, CoreLogic Releases Latest Findings On Consumer Attitudes Towards Housing Affordability, Perceptions of Housing Affordability, at www.corelogic.com.au