- The Sydney housing market has got to the point where first home buyers need to save at least AU$100,000 to buy into a market like Sydney.
- In most cases, banks offer a joint loan, meaning both parties are paying back one loan as opposed to the bank splitting one loan for each part.
- While joint loans offer a solution for first home buyers, it’s fraught with risk because each party is totally liable for the entire loan.
For many young people in Melbourne and Sydney, getting a foot in the door of the property market is all but a pipe dream. Take Sydney, for example. In Sydney, the median house price has jumped by 55% in three years to AU$1.6 million.
The same is true for the wider Australian property market whose growth has been fuelled by low interest rates and burgeoning buyer demand.
It’s got to the point where first home buyers need to save at least AU$100,000 to buy into a market like Sydney. For some couples, this is feasible; but for most single people, it’s next to impossible.
One alternative, which offers a solution to being priced out of the market, is co-buying with a like-minded friend or family member, whereby they pool their resources to acquire a loan suited to them.
While co-buying does offer a solution, it should be noted that there are many pitfalls involved in this tactic.
Finding the right people
While some people combine forces with their friends to acquire a property, most co-buyers are family related. This is due to the fact that in case of relatives, there’s more trust and both buyers are more often on the same page when it comes to their goals.
Finding the right loan
This is undoubtedly the toughest part of co-buying a property. In most cases, banks offer a joint loan, meaning both parties are paying back one loan as opposed to the bank splitting one loan for each party.
While joint loans offer a solution for first home buyers, it’s fraught with risk because each party is totally liable for the entire loan. This means that should one party get sick, injured or laid off from the job and they’re unable to make payments for a period of time, the other party has to pick up the slack.
This is why when banks offer these loans, they only loan out the amount relative to one person’s borrowing capacity. For example, if a bank offers two people a joint loan of AU$500,000, the bank will make sure that both parties can pay back the entirety of the loan by themselves.
This brings up another good point in that for two people to get approved for a joint loan, they’ll have to have similar incomes. If one person is earning AU$50,000 a year and the other is earning AU$100,000 a year, the bank is unlikely to approve a joint loan.
Co-owning a property
The most common form of ownership for two parties who are not married is called “tenants in common” (TIC). This allows each party to own a portion of the property separately and independently. With this ownership, the property doesn’t necessarily have to be split evenly. For example, one party can own 30%, another can own 70% or in any other ratio.
There are other ownership structures to consider other than TIC. Another popular one is “granny-flat eligible interest” where a person buys a house with their parents, who also live on the property in a granny flat.
So, if you’re struggling to get into the property market, be assured that there are other options. However, these options come with their own set of potential problems and hence, before taking the plunge, one must research all their options.