A guide to Co-buying a home

friends co-buying a home

 Estimated read time: 3 Minutes

If you're trying to get into the property market sooner, co-buying or joint purchasing a home with family or friends is an option that could offer a quicker path to home ownership. But it’s important to ensure you co-purchase your property wisely.

Discuss the buying structure

There are many ways to own a property, including in your name, in your company’s name, or even as a trust asset. Each structure has benefits and disadvantages, so it’s best to speak with a legal, tax or financial adviser as to which structure will work best for you.

How to split ownership

First things first, it’s a good idea to discuss how you intend to split ownership of the property with your lawyer before you decide to buy.

For example - if you’re joint purchasing a home with friends, you may decide to split your ownership shares according to the percentage of your respective contributions such as 50:50 or 60:40. 

In this case, your purchase contract and certificate of title will state that you are ‘tenants in common’. This means that each person owns their own respective share and can sell or borrow against their portion of ownership as they see fit.

On the other hand, if you’re buying with a partner you may wish to opt to purchase the property as ‘joint tenants’ – meaning that you both effectively own the whole property. In the event that one owner dies, the other would assume the whole title to the property.

Your lawyer will be able to provide you more information about these arrangements.

Seek legal advice

It’s important that each person who is a party to the co-purchase arrangement receives legal advice. It might also be a good idea to get legal advice as to whether you need a written agreement to reflect the details of the split ownership and any terms and conditions around the break of that agreement.

One mortgage or more?

More often than not, finance is required to secure a property – even if it is a co-purchase. Problems can arise, when purchasers act as joint borrowers because lenders have a right to recover outstanding money from borrowers both jointly and individually. This means that if one person defaults under the loan, the rest of the borrowers are still liable for the full amount of the debt and can risk an adverse credit impact if they don’t repay the defaulting borrower’s share.

So the question is: How do you avoid this situation? Each borrower could opt to take a mortgage for their share, so there is a first, second and maybe even a third mortgage on the title. However, each lender has to agree to this arrangement which can add a layer of complication.

Alternatively, you could consider setting out each of the parties’ rights and obligations in the event of a defaulted payment in a written agreement drafted by a qualified legal adviser.

So in conclusion, while purchasing a home with others can be a savvy buying idea, it’s important to obtain independent financial, tax and legal advice to avoid any potential conflicts or disagreements down the line. That way, you can protect your rights and enjoy peaceful property co-ownership for many years to come.

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Contributor | Barry Saoud, General Manager, Mortgages and Commercial Lending

Barry joined Pepper Money in July 2021 as General Manager, Mortgages and Commercial Lending. He is responsible for the strategic direction and operating performance across product, credit, and settlements for mortgages, commercial loans, personal loans, and direct sales. Read more.

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