The rise of co-ownership and joint-borrowing.

Faced with stricter lending criteria yet keen to take advantage of positive property market factors such as low interest rates and increased government incentives, Australia’s potential buyers are increasingly looking for ways to secure finance approval sooner.

However, many are unaware of their ability to co-borrow with someone other than a romantic partner or the possibility of using a guarantor to secure their home loan.

Mortgage Choice Senior Corporate Affairs Manager, Kristy Sheppard said, “Sharing mortgage commitments with one or more people may ease the challenge of applying for and repaying a mortgage. Plus, it often enables buyers to enter the market with a higher borrowing capacity and increased security around home loan serviceability”.

“Since lenders removed 100 percent loans from the market and limited the maximum lending per borrower to a 90 to 95 percent loan-to-value ratio or lower, we are witnessing a return to the ‘old days’, when a loan approval relied, in part, on an upfront deposit built from genuine savings”.

Faced with taking the leap alone on the minimum deposit required and heading in knee-deep with a concern over future interest rate rises, a number of Australians are turning to property co-ownership and joint-borrowing options.

According to the 2009 First Homebuyers Survey commissioned by Mortgage Choice, Australia’s largest independently-owned mortgage broker, 5% of people planning to buy their first home this year will do so with family. Of those buying with parents, 65% will joint purchase, 20% will receive a monetary gift to help raise adequate deposit and 15% will have parents act as loan guarantor, helping to bridge the upfront deposit and expenses gap plus eliminating the need for lenders mortgage insurance. Over 1% nationally will buy with friends (over 2% in SA and WA).

Not surprisingly, more Australians are expressing interest in purchasing their first property with people with whom they are unrelated, such as a friend or property syndicate, as a means to potentially enter the market sooner. This often increases their borrowing power and shares the financial responsibility.
“It makes sense that an increasing number of buyers are considering collaborating with parents and friends for additional security with their mortgage, especially in the current economic climate,” Ms Sheppard said.

“If potential buyers are eager to take advantage of today’s ‘buyer’s market’ but have a smaller deposit or a lower income than needed for a loan approval, they should be aware of available loan options that could help their situation.

“Visiting a reputable mortgage broker is a great place to start researching different options, as is the internet. Don’t be afraid to utilise social networking websites or online forums to speak first-hand to current property owners about the pros and cons of their loan decisions”.

“Of course, entering into a financial commitment with friends or family can stretch the boundaries of a relationship. Seeking independent legal and financial advice prior to signing a loan contract is very important. All parties must fully understand their rights and obligations to the loan and it is sensible to have agreements in writing before proceeding.