Why you SHOULDN’T buy a home with a friend or a sibling – even if that’s the only way to get on the property ladder
- Your Property Your Wealth explains pitfalls of buying with a friend or a sibling
- The buyer’s agent said a borrower would be liable if co-buyer defaulted on loan
- Director Daniel Walsh outlined what could be done to restore creditworthiness
Young people hoping to enter Australia’s property market are being urged to avoid buying a home with a friend or a sibling.
Real estate in Australia’s biggest cities is particularly unaffordable with Sydney’s median house price of $864,933 more than 10 times an average, full-time salary of $83,500.
To get a loan, someone has to earn more than $150,000 to obtain a typical suburban house with a backyard, leading to a growing number of young people buying an investment property with a friend or a relative.
Young people hoping to enter Australia’s property market are being urged to avoid buying a home with a friend or a sibling (pictured is a stock image of two young friends)
Daniel Walsh, a director of the Your Property Your Wealth buyer’s agent, said someone co-buying a home would be financially liable if the other person defaulted.
‘That’s because if your co-owner defaults on their mortgage repayments, the lender will seek to recover the full repayment amount from you,’ he told Daily Mail Australia on Monday.
Mr Walsh said a co-buyer’s inability to pay their share of an investment property loan could also affect the reliable borrowers ability to get another mortgage.
He illustrated this scenario with someone buying a property with their best friend or brother only to discover later, through a mortgage broker, they now had a bad credit history.
‘Jeff tells you that, according to lenders, you are responsible for the entire loan of the property that you bought with Julie or Josh,’ Mr Walsh said.
‘So, within a few minutes, you’ve learned that you thought you had borrowings of only $300,000 – being half of the loan of the property – but, in fact, lenders will take into account the entire loan amount of $600,000.
Daniel Walsh, a director of the Your Property Your Wealth buyer’s agent , said someone co-buying a home would be financially liable if the other person defaulted
‘Technically, it’s called being jointly and severally responsible for the entire loan.’
Mr Walsh said a borrower in this situation could offer to either buy, or sell, their share of the property from their co-buyer.
That would be the only way to improve their creditworthiness to get another mortgage.
‘That way you would either have no borrowings and a lump sum of capital growth cash to your name or you would at least have the full rent included as income in your serviceability calculation, which would hopefully change the goalposts somewhat,’ Mr Walsh said.
In any case, financial advice is recommended before making a purchase with someone who is not a spouse or a partner.
Real estate in Australia’s biggest cities is particularly unaffordable with Sydney’s median house price of $864,933 more than 10 times an average, full-time salary of $83,500 (pictured is a house at Willougby on the lower north shore)