Buying a House With a Partner, Friend or Sibling

When you buy with someone else, a lender generally assesses your combined income and commitments, and each borrower is responsible for the whole loan, not just their share. How the property is owned (joint tenants or tenants in common) is a separate legal question, and it is one to take to a solicitor before you sign anything.

This is general information only, not financial, legal or tax advice. I am a lender, not a lawyer, so I explain here only what a lender sees.

What a lender sees on a joint application

On a joint application, the lender looks at the borrowers together. Income, debts, living expenses and credit history for each person feed into one assessment. ASIC’s Regulatory Guide 209 on responsible lending requires lenders to make reasonable inquiries about each borrower’s financial situation and take reasonable steps to verify it, including how shared household costs are split. If one borrower has a poor credit history or large debts, that can affect the whole application.

Moneysmart notes that your borrowing amount depends on your income and financial commitments, your deposit and savings, and your credit score and report. With a joint loan, that applies to each of you.

Joint and several liability: the part people miss

This is the point I would most want every co-borrower to understand. Moneysmart’s glossary defines a co-borrower as someone who borrows money jointly with you and says that each person is responsible for the loan, so if one does not pay, the other must pay the full amount. A lender does not split the debt in proportion to deposit or income. If you contribute 30% and your co-borrower stops paying, the lender can look to you for the full repayment.

Agreeing a 70/30 split between yourselves does not change the lender’s position. It is a private arrangement, and it is worth recording in writing with legal advice.

Ownership is a separate question

Who owns what is not decided by the loan. It is decided by how the title is held, and that is a legal matter. In general terms, NSW Trustee and Guardian explains that with joint tenants, a surviving owner automatically takes the share of a deceased owner and that share bypasses the will. With tenants in common, each owner holds a separate percentage, and on death that share becomes part of the estate and is dealt with under the will. The State Library of NSW legal answers guide adds that tenants in common may hold equal or unequal shares.

Which structure suits your situation, and how it interacts with wills, separation, selling or one person wanting out, is a question for a solicitor. Rules also differ between states and territories. A lender can tell you whether it will lend to a particular structure, but it cannot advise you on which to choose.

Things lenders may ask about

• Relationship: some lenders have policies on borrowers who are not family or partners, such as friends. Policies differ between lenders; check with yours.
• Who lives in the property: if one borrower will not live there, the lender may treat the loan differently.
• Contributions: the source of the deposit, including any gift, may need to be documented.
• Dependants and expenses: each household’s living costs are considered, and shared costs need to be split sensibly.

Questions to settle before applying

• What happens if one person wants to sell, or stops contributing?
• What happens if a relationship ends or one person’s income drops?
• Are you comfortable being responsible for the whole debt?
• Does everyone understand what happens on death under the ownership structure chosen?

What to do next

• See a solicitor about ownership structure and a written co-ownership agreement before contracts are signed.
• Ask your lender or broker how they assess joint applications with your particular mix of borrowers.
• Check each person’s credit report and debts before applying.
• Write down who contributes what, including the deposit and ongoing costs.
• Consider whether each person should seek separate advice.

Related Reading

• Guarantor Home Loans: What Family Really Signs Up For
• Riverina Property: Why Regional Serviceability Rules Catch Buyers Out
• Home Lending & Property Glossary

Written by Michael Wignall, who’s spent 30+ years in banking and home lending across the ACT, Illawarra, and Riverina regions of NSW.

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Written by Michael Wignall, Lending Area Manager with 30+ years in banking and home lending across the ACT, Illawarra, and Riverina. Got a question or an idea for a post? Get in touch.