Split home loans are on the rise as more Aussies pool their cash to get into the property market to enjoy the wealth creating benefits of home ownership and investment. Sharing the cost of a property makes sense from a financial point of view and there are some great options available to help Aussies manage how they split their loans.
According to the Julian Finch, founder of Finch Financial Services, a family-owned specialist brokerage company for home, personal and commercial loans, his company is seeing a substantial rise in the number of people seeking to purchase property with others to get into the property market.
“Thanks to some clever thinking on the part of financial institutions, they have developed a suite of products to help people get into the property market by sharing the cost of the property and being able to split the loan liabilities and repayments across all the owners,” Finch said.
“The products, that we refer to as split home loans, can be easier to manage than you realise and you can still maintain your own separate finances.
“If you’re thinking about investing in a property with other people while keeping your finances separate, this is a great option, but there are some serious considerations and risks that are involved. As a broker that knows a lot about split loans and helps a lot of people, there are some important things people need to know.”
Things to consider before diving into shared property
“When purchasing a property with someone else there are some things to consider. Firstly, the type of loans that you’d be eligible for are standard variable rate home loans, fixed rate home loans, basic home loans and lines of credit,” Finch said.
“Secondly, these types of loans can only be used for certain circumstances such as, owner occupied or investment property purchases, home renovations, consolidation of personal debt, personal needs or personal investments,” he added.
“If you’re interested in a split home loan, you will have to meet some eligibility criteria such as all borrowers must be owners of the property, meaning that third party guarantors are not allowed,” Finch said.
“You must also be able to demonstrate that you can manage the minimum required repayments for your home loans. I’d also advise you to seek independent legal advice before entering a property share agreement so that you’re fully informed when you sign the statutory declaration.”
“The main benefit of a split home loan is the flexibility to structure your loan to suit your financial needs. You may split the loan with the other party in whichever you choose to, and you can also choose how you want to manage your own portion of the loan,” Finch explained.
“Each borrower has the flexibility to structure their part of the loan to suit their own needs, and can make their own decisions on the type of loan, amount to borrow, repayment structure and the duration of the loan.
“This level of flexibility is making home ownership and property investment so much easier for people and helping them to get into the market as a first home owner or to start climbing the property investment ladder.”
Risks to consider
“On the other hand, there are risks involved when you split your loan with someone else, so borrowers need to proceed with caution. In particular, when you enter into a split loan, you are effectively providing a guarantee, meaning that you will be agreeing to replay the other borrower’s home loan should they be unable to meet their repayment requirements. This is a big drawback to consider,” Finch stated.
“It’s important to understand that when you agree to be a guarantor, in a worst case scenario, you could end up losing the property if the other party fails to meet their obligations. This could in turn, seriously damage your credit report. So, I strongly advise you to carefully consider who you are entering the agreement with as it needs to be someone you can trust. Besides the financial ramifications, you could seriously jeopardise personal relationships as well.
“From the lender’s point of view, if a borrower is unable to meet the repayments, they will seek to recover debt from them first. However as a last resort, the lender will step in to assist in the sale of the property.”
Other factors to consider
“While a split home loan can give you the opportunity to boost your property portfolio, serious thought needs to go into how you will manage if the other party cannot fulfil their part of the deal. In such unplanned circumstances, you will need to have a strategy to face issues such as what happens if the other party becomes ill or unemployed? Or if they move overseas,” Finch said.
“Furthermore, in terms of owning the property, can you decide amicably on how the ownership will be managed? If the property is for investment purposes and will be rented out, you will need to decide amongst yourselves who will manage the property and deal with issues like not being able to find a tenant or damage to the property. I would also strongly advise having a formal agreement drawn up to clearly state each party’s separate obligations.
“When deciding to enter into a split home loan agreement, it’s important to have a home loan specialist to guide and advise you. Finance isn’t always easy to manage and it can be complicated by adding extra people into the agreement. With the right team of experts behind you, you’ll be sure to get the right advice every step of the way so that you can proceed with confidence.”
About Finch Financial Services
Based in Hurtsville, NSW, Finch Financial Services has been servicing Australian families and businesses with home, personal and commercial loans as well as asset finance services since 2015. Ranked amongst the top five percent of brokerages in Australia according to data from the MFAA, Finch Financial Services is a leading brokerage and family owned business that specialises in finding their customers loans that are tailored to their needs and goals.