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Buying with others - Being Jointly & Severally liable for the lending

Buying with others can be a great option but their may be limits to it.

With the cost of houses increasing as they are currently, it can feel a little overwhelming for people to buy on their own. Teaming up with someone else is a great option to increase deposit and income without doubling your expenses. 

Buying with a friend or family member when you are both living in the property is fairly simple and is basically the same as being in a defacto relationship with that person and so there aren't a lot of differences from normal "couples" lending. The banks usually view a this situation as an "individual party" with some slightly higher expenses rather than two individuals and so income, deposit and debts are all "mixed" together. 

However, when you add multiple parties (two couples for example) it becomes a little more complicated and that is were being jointly and severally liable comes into play.  

Essentially, you will only own a share of the property (whatever you decide) but you will be liable for the entire home loan – so if one person can’t keep paying their home loan repayments then the other parties involved have to be able to cover all their repayments as well.

That means that if one party earns a lot more than the other, the higher earning party may be limited to the maximum the other can borrow as both parties need to be able to service all the lending as they are liable for it. 

Other parts to consider

Another part to this is that as long as you have that mortgage together, all the parties credit reports will be linked together – so any financial irresponsibility by one of the parties can affect the others. You'll need to make sure you trust these people implicitly. 

Buying in this kind of way could also hinder future property purchases as well. A bank will consider only your share of the house as your asset, BUT the whole of the home loan as your liability. The reason they do this is that if things go bad you only have a share of that asset, but responsibility for the entire lending amount.

If you’re looking at this type of arrangement, it’s vitally important that a solicitor or lawyer puts together a property sharing agreement. This details each parties share in the house. Having a legal agreement that will sort out what is to happen if one person wants to sell, if one person doesn’t want to live in the house but the rest do, how much insurance each person will need to have, and any other issues that may pop up is incredible valuable. It is common that we hear “We’ll sort that out as we go along” – but when the rubber meets the road, having a document to lean on, even with family, is a very wise idea. 

The home loan will most likely be issued as one mortgage held against the property, but can be split into parts. That will mean that as an individual party of the loan, you can structure your part of the loan in the way you would like, be it fixed or floating. This may mean one owner pays their part of the mortgage back faster than the others. Even if that happens, they are still jointly and severally liable for all the other lending for as long as the others owe money.

There will be full access of everyone involved to all of the loan information and associated bank accounts so you'll need to be comfortable to be very open with those you are buying with. We have a lot of experience in how this is structured and ways to make it work practically. Please fire any questions through. 

So it it still possible?

Absolutely, we've helped a lot of "groups" of people get into a property so if you have a scenario that you want us to have a look at, let us know and we can see whats possible. 

Reach out to Greg, Claire, Amber or Adam and we can help get things lined up to get you into the property you are wanting.