Buying with family and friends: what you need to know
Getting on that first rung of the property ladder is more a giant leap than a small step for many young first home buyers. According to REINZ’s latest data, the average house price in NZ has reached a record-high $850,000. And CoreLogic’s latest Housing Affordability Report shows property values are increasing 15 times faster than incomes.
It's no wonder that many young Kiwis wanting to get ahead are considering buying a house with friends and family. However, before jumping in, it's essential to have your eyes wide open. Here we provide an overview of what you need to know. Your Loan Market Adviser can offer more personalised advice, so make sure you get in touch.
Benefits of buying with family and friends
On the face of it, there are lots of benefits to pooling your resources with people close to you:
- Shared upfront costs: You get to split the costs of the purchase price, plus legal expenses and any surveys or reports.
- Shared ongoing costs: The burden of mortgage repayments, repairs and maintenance, rates and utility bills is shared, making it more affordable.
- It’s heaps of fun: Sharing a home with your best buddies can be lots of fun.
Sounds pretty good, right? And while there are undoubtedly lots of benefits, there are also some potential downsides.
Risks to consider
Life doesn’t always go to plan. Your circumstances and those of your friends and family can and will change. Here are some of the potential risks you need to consider.
Mortgage liability: Although you only own a percentage of the house, you will still be liable for the whole mortgage. And so, if one person can’t keep up with their mortgage repayments, all other owners must cover the shortfall.
Linked credit records: Your credit record will be linked with your co-owners because you have a mortgage together. If your friend is financially irresponsible, it could also impact your credit rating.
Limited ability to buy other property: Say you want to buy another property and approach a lender for help. The lender will only consider your share of the property as an asset. However, they will look at the whole mortgage as a liability. And this could limit your ability to borrow more money.
If you decide to go ahead with a joint house purchase, get legal advice on setting up a co-ownership agreement. These must-have written agreements cover a range of potential issues, including the following:
- How much money each party is contributing
- What happens if one person wants to sell
- How disputes will be handled
- What happens if one person loses their job
- How maintenance and repair costs will be split.
Ask the hard questions now
While falling out with your family and friends may seem impossible now, things can easily go pear-shaped. Before you sign on the dotted line, have a frank discussion with all parties about the possibilities – good and bad.
With clear expectations and a solid co-ownership agreement, buying with your nearest and dearest could be a great way to help each other. After all, that's what friends and family are for.