Do you get the feeling whenever you add some money into your savings that your home deposit target has inched out of reach yet again?
You’re not alone... and yet you are. Increasingly, singletons are finding it harder to buy property because their one income simply can’t stack up enough for a deposit and a home loan.
So what to do? One way to get ahead is to find someone just like you, who you wouldn’t mind living with, to pool your financial resources and buy a house with.
Doing this with one or more friends, members of your family, or even couples teaming up, is something that more and more Kiwis are getting into. And why not? It could work out incredibly well, though, just like any relationship or business arrangement, there’s always a risk that if handled poorly it could also become a nightmare.
Here are some things to consider before you take flatting to the next, very grown-up, level.
How does it work?On very simple terms, buying as tenants-in-common means buying a house with another person, or people, without being in a stable relationship with them.
It’s nothing new; investors have been doing it for ages. Rather than buying a house jointly, as a married couple would, tenants-in-common each have separately transferable interests. Always ensure that this status is specified on the title.
Explore your mortgage optionsApproaching the bank manager with your best mate and asking for a mortgage together may not be completely straightforward.
Some lenders might allow you to mortgage independent shares, where each party owns interests in the property that may or may not be equal, but are clearly defined. But take note: everyone is equally and jointly responsible for the loan in its entirety.
Other lenders may run screaming from the building when six best mates roll in to take out a mortgage together. In short, check that you’re able to do what you want before making an offer.
Choose your mortgage buddy wiselyYour favourite flatmate of all time - you know, the one who jumped from the roof into the pool that time, made awesome homebrew and always brought your car back from the brink of death - may actually not be the best mortgage buddy.
Because ideally, your partner-in-mortgage would never fail to pay their share of not only the mortgage payments, but also the rates, maintenance costs and all the other money-related issues associated with owning a house.
Choose someone truly reliable who you can - and must - discuss all the nitty gritty details of sharing a mortgage. What you also need are legal bits of paper called a co-ownership agreement that covers on-selling shares in the property, proportion of ownership and liability for all those costs. Before you sign the dotted line, ensure you’ve shown the agreement to a solicitor to make sure that, legally-speaking, you are as protected as possible.
And remember, if you and your mortgage buddy bust up, the paperwork can eventually be sorted out - but your friendship may not. Keep that in mind before taking the big step from being favourite flatties to grown-up home owners.
What if it goes wrong?What if living the dream together in your own house together actually turns into a nightmare when the other person changes their mind and takes off?
If you’re a joint borrower, then you have to pay the bank back all of what you borrowed, not just your share. If you don’t, the bank can sell the property as a mortgagee sale.
The best approachThe smartest way to enter an agreement of this type is to discuss every possible scenario, positive or negative, before entering it. That includes what you’ll do if someone defaults on the loan, if they want to sell before you do, or if an expensive problem pops up. Work it all out, in great detail, before it actually happens. Cover yourself legally as much as you can, and take great care.
Also note that, as you’re liable for the entire amount of the loan, your borrowing power could be affected for future loans.
This information is not intended as a complete guide, as it doesn’t consider your individual needs or financial situation. Trade Me accepts no responsibility or liability for any inaccuracies or omissions in the content. Always obtain independent legal advice before buying or selling property.