CBA’s most recent data indicates that more mortgage applications involve more than one applicant. This number rose from 64% and 67% between 2014-2016. It is falling, however.
When siblings join forces
Yesim Sepek, twenty-five years of age, decided to join her sibling in investing in property. 22-year-old Derya Sepek was her sister and decided to pool her resources in order to purchase an investment property at St Marys, Western Sydney.
At first, Yesim wanted to tackle investing on her own, but quickly realised that though she could handle the repayments, she couldn’t cough up the upfront costs of a deposit and stamp duty.
She then considered purchasing a property through a family trust with her mother and four younger sisters, but decided to go joint with just one of her younger siblings due to concerns over “hidden costs” in the trust structure.
“We discovered that the trust option might not be the best way to move forward because the benefits of the trust weren’t going to be maximised,” Yesim said.
However, applying for a joint mortgage wasn’t an easy decision either. Yesim and her sister were both anxious about the prospect of being “stuck at the hip” financially.
“If you do invest together you are going to be stuck at the hip throughout your whole portfolio unless you…decide to sell it off or buy each other out. If [Derya’s]Goals can change or my goals could change. Technically, we are responsible for all debts and half of the rental income if this happens. That was a bit of an eye opener.”
That’s just one of the risks that come with signing up for joint mortgages. This is because the house prices are so high in Sydney and Melbourne, it is sometimes the only way to guarantee affordability.
Yesim and Derya shared the mortgage purchase and mortgage costs 50/50. The bank will consider them each liable for all mortgage debt. This doesn’t just hinder borrowers who may decide to strike out on their own later on, but can be very unnerving for borrowers in their mid-20s, who do not know what the future holds.
This is not a long-term strategy, but a steppingstone.
Yesim and Derya both realized that joint mortgages could serve as a stepping-stone to their long-term financial plan and can help them keep their relationship intact.
They bought a house in St Marys in disrepair, and began to tear it down, split the land, rebuild it, and then flip it for a profit.
“It is a little, old, rundown house which is rented at the moment — that’s another thing, it is not too much of a strain on the pocket. We are hoping to knock it down and build a duplex and sell them off,” Yesim said.
“It is in for the DA [Development Application]At the moment. The approval process takes approximately three months. The property is currently being rented. We are hoping to commence in February.”
The property was purchased for $467,000. The property was bought at $467,000.
“We are hoping to make $1.3 million, close off the debt, which will be close to $900,000, and then whatever the remainder is what we are hoping to take home.”