Property Co-ownership Explained – Your first step on the property ladder.

The situation

We can all agree that this is one of the hardest times to be a first home buyer looking to grab the first rung on the property ladder. After all, with the inflating property prices and slow growth of average earnings - it takes the average millennial 13 years to save before buying a property!

With nearly 90% of millennials wanting to own a home, but half of you feeling anxious about the future – we have teamed up with Proppie so you can get a piece of the property pie.

Proppie’s goal is to make home ownership a possibility through property co-ownership. Creating a world where renters and owners are equals, with their vision to be the leader in resolving the housing affordability issue in major cities around the world.

Their property platform, centered around co-ownership, provides a service that helps you buy property together with another party, while offering you the security of legal protection. It is the perfect place to look to make their goals and yours a reality. Here’s what Proppie’s platform can do for you:

• Match potential home owners (you) with investors to share the cost of raising a whole deposit;
• Allows you to search properties uploaded by others and team up to look to purchase;
• Provides an opportunity to team up with friends or family members to make buying easier;
• Provides live support throughout your journey and guides you to ensure you are legally protected and have peace of mind (using Lawlab’s legal services).

What is property co-ownership?

Property co-ownership is when more than one person has an ownership interest in the property.

There can be a range of benefits to this including:
• Offsetting the cost of a deposit (and other unexpected costs when buying a house as explained in our blog posts here by sharing this with others;
• Combining multiple incomes to be able to secure a loan/mortgage;
• Paying off your mortgage for your own home, instead of paying rent to pay someone else’s.

The legalities

There are two main ways to co-own a property, being by way of a joint tenancy or a tenancy in common.

Joint tenancy ownership is traditionally used by co-owners in a marriage or de facto relationship. When buying a property in this way the co-owners will own 100% of the property together and on death of one co-owner the entire title of the land will pass to the other co-owner.

Tenancy in common ownership is more commonly used by investors and unrelated parties as it is the most flexible form of co-ownership. Parties can own any size share of the property and exact terms, interests and obligations are detailed in a co-ownership agreement. On the death of a co-owner their share of the property will pass in accordance with their will.

What is a co-ownership agreement?

A co-ownership agreement is a legal agreement used to document the agreement and expectations of each co-owner when the property is purchased. Co-ownership agreements can be prepared for most situations such as buying a property with a friend or family member, teaming up with investors to assist in securing a property or even renovating a property together.

It is very important that you have an experienced property lawyer to assist you in drafting a co-ownership agreement to ensure that all parties are fully informed and protected.

A co-ownership agreement should ensure that:
• The co-owners understand what they are required to do, required to pay and entitled to receive;
• The co-owners understand how the financing arrangements are structured and their liability for any loan defaults;
• The co-owners understand how the property is to be occupied and managed;
• The co-owners are able to meet to discuss important matters in relation to the property; and
• Disputes between owners are dealt with effectively.

I am buying with my friends, why is a co-ownership agreement required?

A co-ownership agreement provides clarity around the amount that each co-owner is contributing to the purchase and most importantly provides for a clear strategy in the event of an owner’s death or a breakdown in marriage or other circumstance.

In addition, a co-ownership agreement assists in accurately stating the intended purpose of the purchase such as as an investment or to be occupied by one or more co-owners.

Where the property is purchased as an investment, it is recommended that you obtain tax advice before entering into a co-ownership agreement.

Group finance – Benefits and risks

The main benefit of applying for group finance is that by combining your incomes, in most circumstances, you would be eligible to qualify for a higher loan amount than otherwise possible.

The lender will have a mortgage over each co-owner’s share in the property as security for the loan. Each co-owner is responsible for its proportion of the loan except where the lender requires each co-owner to provide a cross guarantee to the lender (which is usually a requirement for group finance).

When this is required then the lender can make the non-defaulting co-owner responsible for the defaulting co-owner’s proportion of the loan so the co-owner agreement gives the non-defaulting co-owner rights to recover this from the defaulting co-owner (e.g by selling the property).

The co-owners agreement can also limit the each co-owners ability to borrow more from the lender without consent.

Matthew Woods

Marketing Consultant