Buying A Property With Friends or Siblings
As home prices rise, so has the desire for Australians to look for alternatives to enter the Property Market. One of those alternatives is buying with a friend or a sibling. This has increased in the last year as the Government Home Guarantee Scheme was broadened to include siblings or friends under the scheme. Previous to this, only a spouse could be the co-borrower.
Before you jump into buying with a sibling or a friend there are things to consider. This is a large commitment that you are entering with another person and your property, as well as your own personal credit file can be impacted by their actions. You want to ensure that you and your sibling or friend understand all the implications before you enter this agreement together.
When we have these clients come to our team our first meeting will always cover the importance of agreeing on all the big-ticket items before you buy. This can be done more formally in some cases.
These may include:
What happens when one wants to sell if the other does not?
Is there just one loan shared or are they split so each can pay their own?
How are expenses divided?
What happens if someone else moves in (such as a partner)?
What happens in case of a dispute?
The impact this loan can have on further borrowing for each person .
What happens if one party enters financial hardship – remember both your credit files are attached to this loan?
What is the long-term plan?
When you have agreed on some of the big items, then we move to lender choice. When you are buying with a friend or sibling some lenders do this better than others. Some can split the loan so you can have this separated for your records. Some will even allow you to have your own loans just in your name with the other party “guaranteeing” your loan. This can assist with borrowing capacity down the track, so it is worth exploring. When we make our recommendations, all of these things are considered.
As this type of lending has increased so have some of the lender’s policies, to catch up with the new way of home buying. Previously it could be much harder to borrow again after holding one property with a friend or sibling as banks would look at you being responsible for the entire debt (as technically you could be), however now more banks and lenders are allowing us to use what we call a “common debt reducer” policy that means you only need to cover your portion of that loan when we look at your next venture. Lender choice and structure can have an impact here, so it is important to walk through all your plans with your broker.
Buying with a friend or sibling can be a great strategy and we are seeing it more and more. The team at Sphere believe knowledge is key here and to always plan for the end before you enter the arrangement, so ensure you cover all the possible outcomes and how you would tackle them before you buy together. We also think it can be a great idea to have a legally binding agreement in place, or at least consider if this is right for you.
Buying together may allow you to get into the market where you previously would not have been able to and you both build equity in property as it increases in value and you both work on reducing the debt.
If you are considering buying with a friend or sibling, reach out to the team and have a chat with one of our team members first. We can guide you through the entire process to ensure that it is conducted efficiently and always with our client’s best interest in mind.
To book an appointment, please email hello@spherehomeloans.com.au