Co-ownership: the ideal housing solution or the start of a nightmare?
The New Zealand property market is hot right now, but with this heat comes extra pressures and obstacles for people to get on the property ladder, the hardest hit being the first-time buyers; Christchurch is no exception to the rule.
Saving for a house deposit has always been tricky and finance approval from the banks proving to be slow, buying a property feels very much out of reach for many. However, where there is a will there is a way; one solution that has gained traction over the past year is to pool resources and buy a property as a group.
Whether it’s a parent and child, siblings or a group of friends buying a home together, what seems like a great resolution to a finance and housing problem is not always the golden ticket it first appears to be. It’s vital you enter any shared property ownership with your eyes wide open.
Here are 4 key points you need to be aware of:
1. You are not protected by the Property Relationships Act.
When you buy a property with someone who you are not in a relationship with, it is common to have the ownership type as tenants-in-common, this means you have a defined and distinct share in the property, should one of you die, their share goes to their estate and that estate may grant to call up the deceased half share, meaning the house has to be sold!
TIP: All shared owners should have a Will in place providing for if desired the rights to continue to reside.
2. You are liable for the whole mortgage.
To get the mortgage approved all parties must be in a strong financial position but should circumstances change and your co-owner is unable to meet the financial commitment of the mortgage, you are liable for the whole debt. That is why it important to have a property share agreement in place, giving you in certain circumstances powers to force sale.
TIP: All shared owners should have Enduring Powers of Attorney and insurance policies should be considered.
3. What else needs to be agreed?
There is a large number of matters that will also need covering off indicating the share of outgoings, insurances, relationship partners, rights to stay etc.
TIP: Put an agreement into place covering these things off at the start.
4. Co-ownership effects future property purchases.
As your life moves on you may be in a position to buy another property, but a bank will recognise only your share of the house as an asset yet see the full remaining amount of the mortgage as a liability. Be aware too that your credit record is also linked to the co-owner(s) which may adversely affect future mortgage applications.
How to protect your position in co-ownership
The default position of many people entering this type of agreement is they will sort out issues as they arise. This is their first mistake. When you are investing a large sum of money it is crucial to have a property share agreement to protect your current and future legal and financial positions. This can be drafted by one of our property lawyers.
What happens if the property price rises significantly or falls into negative equity and one of you wants to sell up? How do you agree a fair evaluation? Who pays for renovation and decoration – will contributions impact the amount of sale price received?
These questions may seem unrelatable, but experience shows them to be the source of many arguments and legal costs when relationships go sour! The best property lawyer clarifies the parties’ expectations, explores and defines contingency plans and solutions before they are needed.
If you are thinking about purchasing a property as a group of individuals, (rather than because of being in a relationship), this article is written for you. Before you take the plunge, please contact Weston Ward & Lascelles’ property lawyer Christchurch team for an informal chat to see how we can help make your property co-ownership a positive experience.
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