You know the drill. Boy meets girl, they get married, buy a house and shortly after, a baby arrives. And all this transpires before their 30th birthday, right?
This rosy life plan may have held true in the 1970s, but in recent years this once clear-cut picture has blurred significantly. A deepening affordability crisis has made it increasingly difficult for young people to break into the housing market at the time when they are most in need of financial stability – their twenties.
While young people crave to reach financial independence early on, they are often in no great rush to start a family. Whereas in the past the two went hand in hand, these days it’s financial independence and career establishment, and marriage with children later on.
Higher house prices and increasing numbers of individuals looking to purchase property do not bode well for potential entrants to the property market. But rather than give up, large numbers of young people are instead changing tack.
Sharing the load
It’s the share house of the noughties. Rather than a bunch of mates signing up to a lease on a rental property, more and more twenty-somethings are signing up to a mortgage with their flatmates, friends, or evenfamily members.
A handful of lenders first noticed the trend around the time when state governments were first dangling the carrot of the first homebuyer’s grant in 2001. However, it took a number of years for products to begin hitting the market; after lenders were satisfied of a sufficient level of demand, as opposed to merely enquiry.
Debbie Worthington, franchisee of Mortgage Choice Newcastle, says that nearly all lenders will now put together a split loan facility on their basic or standard variable mortgages. “With 350 lenders in Australia in total, that represents a lot of choice.”
If you’re keen on taking out a mortgage with someone other than a life partner, it’s not just a matter of fronting up to your lender and taking out a regular mortgage. You will need to find a lender who is prepared to split the mortgage in two – you will effectively have two separate loans. See our guide to shared borrowing below for the nuts and bolts of arranging finance.
While organising a split mortgage is a relatively straightforward exercise, it is essential that you are fully aware of the legalities involved in purchasing property in which you have a pre-defined share.
Unlike spouses or de facto couples who take out mortgages as joint tenants, you and your partner will be recognised under the law as tenants in common. This means that you determine upfront the size of your interest in the property, and you sell your interest to a third party if you wish to cash out.
A fundamental tenet of this arrangement is that you are each liable for the other’s share of the mortgage, should one of you default. Experts stress the importance of seeking independent legal advice to draft a co-ownership arrangement to insure yourself against unplanned contingencies.
Why are young people increasingly abandoning the traditional model of marriage, buying a house and having kids? “The big time for people getting together now is in their early thirties, so that has set the scene for quite new patterns of housing, and more people are staying on with their parents,” says Professor Bob Birrell, director of the Centre for Population and Urban Research at Monash University.
Young people staying single for longer has not curbed the desire to achieve financial independence, which was traditionally linked with marriage. People got married and had their first child when they did have a household, which usually meant an initial purchase of a house – that of course is much more difficult today than it was decades ago. “Because people are delaying partnering, for security it’s a very good thing if you can get your foot in the property door,” says Birrell. Indeed, worsening affordability is forcing young people to consider other options, given that it is becoming more difficult to purchase a property single-handedly.
“Young people still need security, they’re just responding to demographic change and finding someone to partner up with them. All the benefits that individuals or married couples once had in the past – now partners, and not necessarily life partners but people acting in co-operation, can enjoy those benefits,” says Mark Bouris, chairman of Wizard Home Loans.
There are clear advantages in teaming up with another full-time income earner to buy property – you can afford twice as much, and in many cases the whole is greater than the sum of the parts.
“Some people might not want to buy a $200,000 house or apartment, they might prefer to buy a $400,000 property which they see as potentially generating a better return or being a better lifestyle, which they wouldn’t be able to afford on their own,” says Bouris.
The concept of shared ownership can also extend to those who are married, but who wish to buy property with someone other than their spouse. Family law provisions restricting spouses to hold assets outside their marriage have been relaxed, so even if you are married you can still buy a house with a friend or associate.
It’s an effective insurance policy in the event that your marriage breaks up as you will have assets in your own name to fall back on. “That way, the marriage isn’t based on what you could lose, it’s based on what you stand to gain from each other,” says Bouris.
A major uncertainty is where you and your partner will be placed in five or even 10 years’ time. When you buy as a couple, the assumption is that you will go through life events together, whereas friends might do so at different times.
The risks of your purchasing partner losing their job, or skipping town and not servicing their share of the mortgage are very real. Basically it comes back to putting a firm agreement in place before you buy – in effect you are business partners, with mutual rights and responsibilities.
Work through various scenarios – such as the mortgage becoming too expensive or one person seeking to cash out first – and work out what you would do in each situation.
“There may be issues to manage, but the agreement will dictate what happens. But there’s also the risk that a husband and wife buy a property together and they get divorced a year later. So I don’t see it as having any additional risk,” says Bouris.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan