As we’re all very much aware, getting on the first rung of the Australian property ladder these days is tough.
For those not already in the market, saving for a deposit feels increasingly out of reach as rising home prices and rents, paired with higher interest rates and living costs.
In June, national home prices hit new record highs – up more than 6.5% over the past year, according to the latest PropTrack Home Price Index.
Meanwhile, the number of first-home buyer new loan commitments fell 3.3% in May, and were only marginally higher compared to a year ago, increasing 3.7% nationally, according to the Australian Bureau of Statistics.
This means that fewer and fewer first-time buyers are able to enter the market and those that do are having to take on crippling mortgages to achieve it.
But while the dream of owning bricks and mortar is becoming more elusive, there is another option for wannabe homeowners looking to get their foot on the first rung of the property ladder: buying with friends.
“Buying with friends remains uncommon but has seen more interest with the continued increase in home prices,” said PropTrack senior economist, Paul Ryan.
Many young Aussies are weighing up buying a home together to get onto the property ladder. Picture: Getty
“Reflecting this, the Home Guarantee Scheme now allows joint purchases — with as little as a 5% deposit — without requiring the purchaser to pay for lenders mortgage insurance.”
Last year, the government amended what was formerly known as the First Home Loan Deposit Scheme (which previously only covered singles and married or de facto couples) into the new model that allows friends to buy together.
“The scheme allows 35,000 applicants annually,” explained agent and chief communications officer at First National Real Estate, Stewart Bunn.
“You must be at least 18 years of age, earning no more than $125,000 (individuals) or $200,000 collectively for friends applying together. It’s a fantastic initiative that really helps friends get into the market sooner rather than later, without the financial impediment of mortgage insurance, which protects banks, not individuals.”
While the benefits of pooling your financial resources to significantly increase your purchasing and borrowing power is obvious, co-owning with friends doesn’t come without potential pitfalls.
PropTrack senior economist Paul Ryan says buying a property with friends is gaining more and more interest as home prices continue to rise. Picture: Supplied
Indeed, there’s a multitude of considerations before you commit to committing to a property purchase with your buddies.
Here's the latest expert advice on the buying-with-friends dos and don’ts before you make the leap.
Buy with as few friends as possible
It’s an age-old adage that too many cooks spoil the broth. Well, when it comes to buying with friends, that maxim is doubly true. In order to keep the purchase as trouble free as possible, it’s important to limit the number of co-owners to reduce complications and complexities.
“Without doubt, less is more when it comes to buying with friends,” said Mr Bunn. “It’s critical to draw up a co-ownership agreement and the fewer parties involved, the greater chance of success.”
Choose your partners carefully
Just as with any personal or business relationship, compatibility is key. Though you might be BFFs when you sign on the dotted line, when the proverbial hits the fan a few years down the track, this may not be the case.
Financial woes are often one of the biggest contributors to marital breakdowns and the same principles apply when it comes to friends in a co-ownership arrangement. Watch out for any early warning signs or red flags and make sure you have no doubts before taking this financial leap.
Finding potential co-owners who share similar financial goals and lifestyles is key. Picture: Getty
“It is crucial to partner with friends who are not just trustworthy, but also share similar financial goals and lifestyles,” cautioned mortgage broker at Eden Emerald Mortgages, Shaun Bettman.
“Look for those you can trust and who share your views and passions about property (if you’re investing), or that you could live with if the plan is to become an owner-occupier. Always look to protect friendships and relationships and ensure that all parties have similar expectations about property management and investment returns to prevent future conflicts.”
Be open with your finances
Given the potential hazards involved when buying together it’s vital that everybody remains clear-eyed about the scope of the undertaking.
Any property purchase is a big financial commitment, not only because of the decades of monthly repayments, but also the responsibility for ongoing expenses involved in running and maintaining the property.
As such, being upfront about your individual finances from the get-go is highly important before you even begin your real estate search.
“Friends should spend some time going over their finances, being as honest and open as possible about each person’s expenses, spending, savings and debts,” said Mr Bunn.
It's important to be open about your finances before buying a home together. Picture: Getty
“This gives a true picture of each person’s financial strengths and weaknesses.
“Drawing up individual budgets is a good exercise to learn exactly where your money goes. Knowing each other for what seems like forever does not mean you have any idea about what each of you does with your money.
“Discuss what your current budgets are and how they will have to change to manage the new expenses. It’s important you both understand the commitments of buying a house with a friend.”
Buy and borrow sensibly
The fundamentals of a wise property purchase and borrowing are the same whether you are buying alone or with others. You need to consider your financial position now — including whether you can afford the deposit, ongoing expenses and any unexpected costs — as well as in the future.
“Ensure the property is affordable for the group and that borrowing levels are sustainable, even if someone's personal circumstances change,” said Mr Bettman.
“Take into account planned changes such as someone starting a family, changing to part-time work or anything that can affect the amount of money an individual earns.”
Agree on key search criteria
Before you and your co-owners begin your search it’s also important that you have a shared vision - one that’s realistic - for your property purchase and that you stick to the search parameters.
All parties should agree on key property criteria such as location, type of property, and potential for growth. Consensus on these points can ensure that the property meets everyone's needs and expectations.
Co-owners should agree on key property criteria like location and type of property. Picture: Getty
“As always, the fundamentals of property wisdom apply,” said Mr Bunn.
“Location, location, location, or you buy the worst house in the best street. Properties with a good outlook or aspect, near transport or education infrastructure, shopping centres or the like are always likely to perform well over the longer-term.”
Take emotion out of the equation
Whilst you likely have a long history with your friends, when it comes to any financial commitment with them you need to think with your head and not your heart.
“Once you’ve decided that you can buy a house together it’s important to plan ahead and have a clear understanding of what you want and what your individual responsibilities will be,” said Mr Bunn.
Decide early who will be responsible for activities such as gardening and maintenance issues. Picture: Andrew Zaeh
“If one of your longer-term goals is to be in a relationship and start a family, then it’s safe to assume that will happen during the course of your mortgage.
“You’ll also need to consider who is responsible for what a property needs to be regularly maintained. Decide prior to buying who will be in charge of calling tradespeople, who will take care of the garden and who will go to the body corporate meetings — all of these responsibilities need to be considered and allocated in advance to avoid confusions and resentment in the future.”
Consider the risks
Whilst buying with friends has its clear advantages — especially given the affordability pressures we are witnessing — there are also a number of associated risks with it too.
What happens if one co-owner can’t afford their share of the mortgage payments? What happened if one of you wants to sell and the others don’t? These can be serious issues that could put you in a great deal of difficulty, both personally and financially.
Financial advice is recommended for anyone considering purchasing a property with friends. Picture: Getty
“While a joint purchase may seem like a short-cut into the housing market, buyers need to think about the complexities it can introduce,” cautioned Mr Ryan.
“People considering purchasing with friends should definitely get financial advice for their particular circumstance, as these arrangements can introduce complex issues, particularly if one of the purchasers wants to sell or can no longer pay their share of the mortgage.”
Do your legal due diligence
Before committing a huge chunk of your finances it’s necessary to both do your legal homework and to make sure that there are legally binding agreements in place to protect the interests of all parties.
A formal agreement is a great way to put issues on the table, identify problems you may not have considered, and to map out the way forward if things go bad.
A formal agreement will protect the interests of all parties. Picture: Getty
“A co-ownership agreement should clearly detail what happens if your friends can’t pay the mortgage, wants to sell their share in the property, if the relationship deteriorates, or there is a death,” explained Mr Bunn.
“You may need to set up a joint bank account for expenses, outsourcing maintenance and putting direct debits in place for mortgage and bill payments.”
Have an exit strategy in place
While you’ll go into this with the best of intentions — and the best hopes — sometimes things don’t go to plan. Because of this grim reality it’s important to have an exit strategy in place if, for example, a friend wants to sell their share or if you decide to part ways.
“While no one wants to think about this, we all need to be prepared for the worst,” said Mr Bettman.
“Be prepared for scenarios where co-owners may default on payments, wish to sell early, or other unforeseen circumstances arise, such as loss of income. Having an agreed-upon exit strategy can alleviate potential legal battles or financial losses, ensuring all parties understand the available options if the co-ownership needs to be dissolved.
“While buying with friends can make property ownership more accessible to Australians, it comes with its own set of challenges that require careful planning and consideration. By setting clear rules and maintaining open communication, co-buyers can manage their property effectively and enjoy the benefits of their investment.”
