Borrowing with friends – something to consider?
With all the talk in recent months around home loan lending and affordability in the after-math of the recent Royal Commission into finance and banking practices, one very big change that has been immediately evident is the credit squeeze forced onto new borrowers, as part of the process of lenders assessing the borrowing ability of new applicants. This has seen increased scrutiny around actual living costs and spending habits such as drilling into applicant’s most recent bank statements (usually 90 days) and related transactions to verify there are no undisclosed debts! A very clear directive by industry regulator’s ASIC and APRA.
In the midst of all of this regulatory change going on, we are about to be treated to a new, free-to-air television program revolving around a group of friends looking to buy an owner-occupied property as joint borrowers, under the premise that their combined income together will provide them with greater borrowing power than two married couples.
Nooooooooooooooooooooooooooo…………it doesn’t quite work that way!
In theory - yes, it’s a fair idea, and yes, it could potentially work.
But in reality, it is ASIC and APRA, the Banking regulators that make the rules, not the TV program producers and writers. When it comes time to assess an application of this nature, the rules of ‘responsible lending’ set by such regulators come into effect. Therefore, each individual would need to be able to demonstrate sufficient means to service not just their portion of the proposed new debt…. but most likely all of it! This is to mitigate the risk of any or all of the other joint borrowers finding themselves in financial difficulty and unable to pay their loan contribution for any length of time.
Some lenders may make an exception on a case by case basis e.g. two siblings buying an investment property together where the rental income easily services the proposed new debt and all outgoings of the property, thus making minimal if any impact on their own individual living costs etc.
So, if you are currently home loan hunting, and you are thinking of going in with a friend or two to potentially increase your borrowing potential, then you need to slow down a little and talk to an expert first to get the facts. No two loan applications are the same, so it makes sense to speak to your broker first. Please feel free to give me a call on 0438 041 111 to organise a confidential discussion about the do’s and don’ts of buying with other people.
As always, enjoy life, work hard, play safe and remember that we are always here to help you
‘Take the Confusion Out of Lending’
All The Best
Peter Vinci - 0438 041 111