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With increasing mortgage costs, co-sharing is becoming an appealing option for borrowers.
Housing Australia, formerly known as the National Housing and Finance Investment Corporation (NHFIC), commenced a new round of home guarantees on 1 July, offering 50,000 places across the First Home, Regional First Home and Family Home guarantees with expanded eligibility criteria.
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The expanded criteria now encompass permanent residents for all guarantees, individuals who have previously owned properties but haven’t done so in the last 10 years for all guarantees and joint applications for those not in a relationship (eligible for the First Home Guarantee and the Regional First Home Buyer Guarantee).
To access the scheme, borrowers must approach one of the 33 participating lenders, which include three of the four major banks, excluding ANZ.
Managing director at Finch Financial Services, Julian Finch, noted that home guarantees continue to gain popularity, with a growing interest in property sharing among friends.
He also mentioned the benefits of property share loans, such as ING’s, emphasising that each person is only responsible for servicing their portion of the home loan as an individual.
“It is a great development, which helps to put structure around joint purchases, increasing the benefits for all parties while reducing the risks also,” Mr Finch said.
The way a property share works is borrowers will purchase a property together and the title will be set up as Tenants in Common with a percentage of ownership assigned to each party, a spokesperson at ING said.
"They then guarantee each other’s loans and the loans are set up in single names only for an amount they choose. Each borrower is then only financially liable for their portion of the loan, however, all lending is linked through the property and guarantee".
Similarly, Kirsty Dunphey, director and mortgage broker at Up Loans, has seen an increase in purchases involving siblings making their first property purchase together.
However, she cautioned that this could affect future borrowing capacity since many lenders may view the entire debt as belonging to each borrower.
“It’s important clients understand the difference between owning as tenants in common versus joint tenants and obviously it’ll need to be something they consider around future purchases with spouses/partners,” she said.
While the expanded guarantees have only recently become available, products like CBA’s property share are gaining popularity.
Additionally, most loans can be structured with individual responsibilities, effectively assigning one loan to each person, allowing them to pay it down at their preferred pace to meet their personal needs, she recommended.
Hardship concerns
In addition, as delinquencies increase on the back of higher interest rates and substantial mortgage debt, concerns have arisen regarding the handling of financial hardship.
Mr Finch expressed concerns about lenders urging borrowers to seek payment deferrals, which can negatively impact their credit ratings.
While it seems to be promoted as a “helping hand” in the background, it will “cause a period of ineligibility to refinance to a new lender due to the recording on their credit report”, he said.
“Whilst the banks are doing a good job in helping customers through difficulty, the amount of people who have relayed the comments – but my bank told me it won’t affect my credit score – which is not entirely correct,” he said.
“Payments may be put on hold, but interest isn’t, which only worsens the mid to longer-term outlook for people.”
As such, he recommended offering clients a comprehensive review of their debt position and providing consolidation solutions.
[Related: Expanded home guarantee scheme now live]
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