Understanding Property Co-ownership
When it comes to buying property, co-ownership is a cost-efficient way of both securing it, and maintaining it. While co-ownership has many associated benefits, it’s important to fully understand the ins and outs before making any commitment decisions.
Let’s take a closer look.
Property Co-ownership at A Glance
How Does It Work?
There are two types of co-ownership: ‘Joint Tenants’ and ‘Tenancy in Common’.
Joint Tenants own the property entirely together, meaning if a co-owner passes their share is transferred to the other owner automatically with no control over the ownership rights.
Tenants in Common, however, can choose to bequeath their ownership to a party or person other than their co-owners. Ownership does not have to be equal, and there is greater flexibility in regard to conditions and agreements.
Pros of Co-ownership
- Purchasing costs such as stamp duty, pest and building inspections, legal fees are split between all owners.
- Savings are combined to establish a larger deposit.
- The buying-power of all buyers are combined to be able to effectively borrow more.
- All owners will be paying off the mortgage together if any shortfall after rent and expenses.
- Essentially, you’re splitting all expenses into agreed upon portions – usually dependent on how much each person has contributed into the ownership.
Rates, renovations and maintenance costs aren’t cheap, and having other people involved can make the world of difference to your finances, both in the short and long term.
Collectively, these points demonstrate that you do not need nearly as much money and/or buying power to purchase a property as you would if you bought one on your own. The mortgage could also be paid off a lot sooner.
Cons of Co-ownership
- You don’t solely control the property.
- Co-owners may experience difficulty agreeing on various issues down the line – one may have the desire (or need!) to sell, whilst another may prefer to keep the property.
- Personal circumstances of all owners must be taken into consideration over the duration of the ownership.
- Would affect the ability to buy another property – the bank will take into account the entire mortgage for all owners influencing your own borrowing power.
- Banks are entitles to sell the property if other parties default and you’re unable to make the required repayments.
Are there any other risks involved?
There are always risks involved with any type of investment, which is why a formal agreement should be drawn up that includes all parties and their conditions of ownership before making decisions. There are numerous possible issues that may arise throughout the course of the ownership, especially if you’re a co-owner among three or four others. Remember that life happens and people can change along with their personal circumstances.
Grants and Government Assistance for Co-ownership
First Homeowners Grants and other government schemes may still be available to those purchasing through co-ownership as long as all parties are entitled to such grants. How much you can save depends on the individual circumstances of each buyer, and where you intend on buying.
More Things You Should Consider
- How financing will work.
Criteria is assessed as a group to determine how much can be borrowed and who will pay what. Everyone’s names will be listed on the title and mortgage and you will all be liable for each other’s debt. You must be prepared in case one person wants to sell up, or can’t make their repayments.
- The Co-ownership Agreement.
This sets out the legal obligations of each person in the co-ownership. It also needs to indicate how potential ownership issues will be dealt with like a debt plan in case things go south and one party is unable to pay their share.
A conveyancer prepares and manages the transferring of the ownership between the vendor and buyer(s). The ownership will be transferred into the names of all co-owners, which includes about six to eight weeks’ worth of checks and processing.
- Specific Advice
If you are considering to co-own a property, it would be prudent to seek specific legal advice to ensure your specific needs and plans are met.
As always, please feel free to contact Ethan to discuss your finance options.