Not everyone is fortunate enough to have a long-term partner on hand when they’re ready to enter the property market. Rather than waiting until the right person comes along, some budding home owners decide not to be slaves to convention, and enter the property market with a family member or a good friend instead.
How shared mortgages work
Applying for a mortgage with a co-borrower works mostly the same regardless of whether it’s a romantic partner or your childhood best friend. Both names will be on the loan, and held jointly responsible for repaying it.
Ownership structure
There are two common ways to split the ownership of a shared property. Joint tenancy means both parties act as a single entity, which is wholly responsible for the property. When parties take a proportionate share (it could be 50/50 or an uneven split), this is a tenants in common arrangement, where either person can sell their share at any stage.
A joint tenancy limits what you can do with your share, while tenants in common allows for more flexibility. On the other hand, a joint tenancy guarantees both parties equal say in what happens to the property. If you decide to be tenants in common, the majority shareholder can decide to sell the property without the consent of the other.
Splitting up from a joint mortgage
Just like with romantic partnerships, if you and your co-borrower decide to go your separate ways, you will likely need to refinance the loan. If you are planning on taking on the loan yourself, you will need to requalify, satisfying your lender you will be able to make the required repayments by yourself.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.79% p.a. | 5.83% p.a. | $2,931 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.69% p.a. | 5.60% p.a. | $2,899 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.93% p.a. | $2,962 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure |
Are joint mortgages with friends a good idea?
Lloyd Edge, Founder and Director of Aus Property Professionals buyers agency, says he often has clients asking him about this, but he usually recommends against it.
“A lot of due diligence is needed to ensure this is the right decision,” he told Infochoice.
However, he acknowledged there are several advantages inherent in splitting the cost of buying property with another person.
Advantages of shared mortgages
- Higher borrowing power - Combining incomes can increase overall borrowing capacity, as lenders assess both applicants together when determining serviceability.
- Faster entry into the property market - Pooling savings and income can help co-borrowers reach deposit requirements sooner, making it easier to purchase a property earlier than buying alone.
- Shared ongoing costs - Mortgage repayments, rates, utilities, and maintenance expenses can be split, reducing the financial burden on each individual.
- Improved affordability of ownership - Day-to-day costs of owning a property are generally more manageable when spread across two or more borrowers.
Disadvantages of shared mortgages
- Full legal responsibility for the entire loan - Each borrower is jointly and individually liable for the full mortgage, meaning one party can be held responsible for the entire debt if the other cannot pay.
- Risk of financial imbalance between co-borrowers - If one borrower experiences financial hardship, the other may need to cover the full repayments to avoid default and potential credit impairment.
- Potential strain on personal relationships - Financial arrangements between friends or family members can create tension, particularly if expectations around money, ownership, or exit strategies differ.
- Reduced future borrowing flexibility - The full mortgage amount is considered part of each borrower’s liabilities when applying for future credit, which can reduce borrowing capacity.
- Complications if one party wants to exit - Selling, refinancing, or buying out a co-borrower often requires formal approval and financial restructuring, which can be complex and time-consuming.
- Industry caution on shared property ownership - Mr Edge advises that buying with friends or family requires significant due diligence, noting that arrangements can quickly become complicated if financial circumstances or relationships change.
Joint mortgage considerations
Who you should buy with
If you’ve already got a potential co-buyer in mind, it’s probably someone you know, and trust, reasonably well. For those who are still perusing, there’s a couple of things to remember.
Trust is by far and away the most important thing. When you co-sign a mortgage with someone, you jointly accept responsibility for the loan. If the other person stops contributing, the lender will still need to be paid, so you’ll either have to cover all the repayments yourself or default on the loan. If your best friend is notoriously flaky, they might not be the answer.
You’ll also inevitably be spending a lot of time with the person you buy with, so it should be someone you are happy to be around for extended periods.
Official prior agreement
Mr Edge says before anyone rushes out to buy with their sibling or best friend, it’s important to have a legally binding arrangement in place.
“It is important that there is a solid co-ownership agreement in place so that there are no arguments or grey areas when it comes to buying the property. It is also important to ensure that both parties have received individual legal advice on their right,” he said.
“Setting up a legal deed can minimise arguments so that it is clear who will pay which bill or how they are to be split, what happens if a co-owner can no longer afford to pay the mortgage, or what happens if a co-owner passes away.”
He says this is particularly crucial when the time comes to sell the property, or for one party to buy out the other.
“It’s important … you are both on the same page about when you plan to sell the property and what will be the plans for the property if the relationship breaks down,” Mr Edge said.
First published in November 2023
