Pros and cons to buying a property with your partner – and ways to safeguard yourself
As Valentine’s Day approaches, many Aussies may get swept up in their love bubble and be planning their future, with the pandemic possibly accelerating a desire to buy a home together.
But before you decide on what could be one of the biggest commitments you’ll ever make with a significant other, it is important to have weighed up all the pros and cons.
It’s easier to secure a bank loan.
One of the biggest hurdles that an individual will face in their property journey is obtaining finance. If you apply for a mortgage with your partner, there is a higher chance of approval, as your combined income will lead to a more competitive interest rate and a larger borrowing capacity.
If both of you have a good credit score and stable income, this will increase your chances of success.
Setting up a future for your family
Property is an emotional investment, as you’re choosing a specific area and dwelling that will become a huge part of your life. Setting up a future and making a lifelong commitment to a person is a huge milestone that you should be proud of.
If you’re thinking about having children or owning a pet for example, take this into account and purchase a property that has a caters to those needs, such as a garden or spare bedrooms.
Your partner could impact your borrowing capacity
On the flip side, it could actually be harder to obtain finance if your partner is not working.
If your partner is dependent on you and is unable to provide documentation to illustrate a stable income, the banks will not look favourably on your situation as it’s a risk to them.
If your partner is not working, seek advice from a reputable mortgage broker who can source a loan to best meet your circumstances.
There is a risk involved if the couple separates
Although obvious, it’s surprising how many couples enter co-ownership without the appropriate structure or agreements in place. It’s hard to predict what will happen in the future, and despite people’s best intentions to remain civil, this is not always the case.
Ways to safeguard yourself
Choose ‘Tenants in Common’, not ‘Joint Tenancy’
Tenants in Common allows two or more individuals to own a specific percentage of the property e.g. 50/50, 60/40, 70/30.
Before you purchase the property, decide what percentage you’d like to own and set this up with your solicitor. Each dependent owner can then control their specific portion.
There are a few reasons why Lloyd Edge recommends this:
“If you are contributing different amounts towards the purchase or you want to maximise the tax effectiveness of the asset if it’s an investment property.
However, the main benefit and difference to Joint Tenancy is that if one of the owners die, their share doesn’t go to the surviving co-owner, it is distributed to the person stated in their will,” he said.
In the event of a break-up, the parties need to either come to an agreement as to who keeps the property and one partner might pay the other out, or they need to sell so both partners receive the funds.