The phrase “smashed avocado” in Australia has become a recurring theme in the debate about housing affordability and has evolved to symbolize inter-generational tensions around the cost of housing. Ever since demographer Bernard Salt wrote, in a wry newspaper column, that he had seen “young people order smashed avocado with crumbled feta on five-grain toasted bread at $22 a pop and more” the term has become synonymous with first home buyers struggling to get onto the property market.
However, Gen-Y and Millennials aren’t taking this unmerited label lightly, instead they’re becoming ever more creative with ways to get their feet on the property ladder. One of the methods young professionals are managing to purchase property AND indulge their brunch habits is to buy property with friends or siblings (according to ING direct there has been a surge in joint mortgages of nearly 10 percent in the past 12 months).
The most compelling benefit of buying property with a friend or sibling is the most obvious – splitting the costs. Assuming you’re buying with only one other, you’ll need half the deposit, you’ll pay half the mortgage repayments, half the maintenance and property management bills, and so on.
This may allow you to purchase property in a better area, to buy a bigger, home, or simply to purchase property earlier than you would have otherwise been able to. And with prices increasing the way they are, the benefits of buying property sooner rather than later could be considerable.
However, despite all the perks of buying together, there are several risks which you need to be aware of:
- Partners with equal shares – say, 50:50 – should have a “memorandum of transfer” to avoid half of the property automatically passing to the other joint tenant on their death. Or they could hold the property 50:50 as tenants in common.
- Tenants in common with unequal shares – say, 75:25 – can put property in separate names to avoid later disputes about who contributed what.
- Creating a deed can set out who pays which bills.
- Owners will be jointly liable for the mortgage, regardless of the size of their share. Make sure liability reflects ownership. For example, don’t be liable for any shortfall in mortgage payments if you only own 10 per cent of the property. This needs to be agreed with the banks, which are often reluctant to limit liability in the event of default.
- Additional contributions to the property by one party (such as renovations or payments) could entitle them to a greater share. Ensure terms and conditions are set down, understood and agreed when property is purchased.
- Where the property is not owned 50:50, it could be worth considering lodging a caveat, which is a notice on the property’s title, setting out both people’s interests, lawyers advise.
- Seek legal advice about gifting your share to the other owners in a will to prevent disputes with respective families. This is to prevent families of the deceased rowing over the will.
- It is possible for a joint tenant to sell or dispose of their interest, so decide on an exit strategy as early as possible. In extreme cases, courts can force one party to sell to the co-owner. Stamp duty normally must be paid on the market value of the share being transferred.
- If there is conflict, courts can apportion shares of the property between the parties that may be different to their originally agreed share.
- Most importantly – Try to anticipate future problems and agree on a strategy to solve them!
And Finally – Buying with friends or siblings isn’t the only way for you to get onto the property ladder… have you considered using a guarantor? gifted funds? improving serviceability by reducing liabilities? Be sure to contact us to discuss your circumstances and discover all the options available to you.
Divitis Finance & Mortgage Broking
02 8412 0009
69 Reservoir Street, Surry Hills, NSW 2010
