When buying a property with someone else, the most common type of home loan is a “joint home loan” but that’s only appropriate if your finances are intertwined and your income and liabilities are considered joint and equal. However, there’s couples/spouses who choose to keep their finances separate and there’s family members and friends who buy property together. Those people need financial independence to ensure contributions/obligations are fair and that they have the freedom to purchase real property in the future, independent of the total mortgage amount registered over that property.

A property share loan recognises individual ownership by way of two separate home loans each applicant takes out over the same property and both mortgages are secured against the same property. This loan structure benefits the individual owners in the following ways:

  • Individual borrowing capacity is assessed.
  • Individual deposit amounts are assessed and adjusted in repayment amounts owed.
  • Each person can pay down their loan at their own rate (above the minimum repayment schedule subject to the loan terms and conditions).

The benefits of buying a property with someone else in a property share loan are:

  • Property affordability is increased—more options in property type and its location due to the pooled borrowing capacity.
  • The upfront costs (legal fees, stamp duty, building reports etc.) are lower as they’re split between two parties.
  • Standard borrower interest rates apply due to a lowered risk of separate borrowers attached to the property.

The key point about how property share loans differ to a joint property loan structure is that for future lending, lenders look at the total mortgage amount owed on the joint property loan, which reduces the individual’s borrowing capacity.

Individual borrowers who want to consider a property share loan must have a co-ownership agreement to deal with the following issues:

  • The basis for covering ongoing property costs in terms of maintenance, management (if renting out), and selling costs (if/when).
  • A plan and budget for property maintenance and management.
  • A shared vision and plan for how long the property will be owned for (e.g. minimum period for ownership and maximum period).
  • An exit strategy for one or both people—due to financial reasons, lifestyle changes, and illness etc.
  • A plan for what happens if there’s a disagreement and how to resolve it.

Practical tactics to manage the co-ownership include:

  • Seeking and following expert advice from professionals (e.g. mortgage broker, accountant, lawyer).
  • Opening a joint account to manage the property-related expenses.
  • Learning about the respective tax implications for each party.
  • Considering mortgage protection insurance.

There’s lots to consider and factors that need to be assessed in potentially getting a property share loan. The obvious credit factors and borrowing capacity tests apply and there’s a limited amount of lenders that offer property share loans, which have various criteria and limits.

The expert team at Get Real Finance will explain how this type of property loan works, what needs to be considered, as well as guide buyers along the journey. Importantly, we spend the time needed with both parties together and separately to raise the potential issues with this type of loan and property ownership to uncover the expectations and potential realities in the property ownership equation.