With more Australians delaying marriage until later in life, and four out of five married couples living together before tying the knot, buying a home with your partner can seem like a great way to get onto the property ladder.
Although the average age of first-home buyers has remained constant at 32 years old for two decades, the median age of marriage in 2015 was 31.8 for men and 29.8 for women, compared to 29.5 for men and 27.6 for women in 2005, according to data from the Australian Bureau of Statistics.
If you are already living with your partner, your finances will likely have already merged to some degree, and buying property together may have crossed your mind. After all, it’s easier to secure and service a home loan with two incomes rather than one.
But considering that buying a home is one of the largest purchases you will ever make, there is much more at stake financially than signing a lease on a rental property, especially if the relationship comes to an end.
While you may think that marriage would make it easier to secure a loan, or offer you more security in the event of a breakup, the reality is that both the banks and the courts treat de facto couples the same as they would married couples.
Mortgage broker and owner of Simplify Finance, Fabio De Castro, said that an increasing number of his clients, about 40 per cent, aren’t married when they secure a home loan.
“These days a lot of people are very comfortable in de facto relationships and living together,” he said.
According to Mr De Castro, unmarried couples with healthy finances aren’t any less likely to be able to secure finance for a joint purchase than a married couple.
“If you have been living together for three months, banks will class you as de facto,” he said.
For many couples, financial contributions from parents can be a big help when it comes to purchasing a home, with 29 per cent of first-home buyers relying on parents to help fund a purchase, either through cash gifts, rent-free accommodation or guarantor loans.
But according to Mr De Castro, when parents’ finances become involved, it can be complicated if the relationship comes to an end.
“We had a de facto couple that were looking to buy a place together. They didn’t have enough for a deposit, so her mother went guarantor,” he said.
“They bought an apartment, but six months later ended up separating. Without her mother supporting them, we needed to find a way to refinance him to be able to buy her out.”
When it comes to guarantor loans, there are ways that parents can minimise their risk, according to Bounce Financial director Cara Brett.
“It’s important for parents to understand whether they are guaranteeing the whole loan or just a small part of it,” she said. “Sometimes they only need to guarantee a portion of the loan.”
Ms Brett recommends reviewing the loan every few years, as any equity that has built up may mean a guarantor loan is no longer required.
Gifts from parents may also have implications on their retirement plans, explained Ms Brett. “If a parent is gifting money within five years of their retirement, it may have a negative impact on what they can receive from the age pension,” she said.
A financial planner will be able to explain the best way to structure your loan, especially if your situation involves multiple parties outside of the relationship, such as parents.
Lay the ground rules
Although it can be an awkward and less-than-romantic conversation, it’s smarter to discuss beforehand how the property will be divided if the relationship ends, rather than attempt to figure it out in the heat of the moment.
It’s worth having a frank and open discussion about potential scenarios, such as whether you would need to sell the home to pay off the loan or if one partner could buy the other out. If contributions made to the deposit or repayments are unequal, you should discuss up front how the proceeds of a sale would be spit.
If a de facto couple can’t agree on how assets should be divided after a break-up, disputes can be handled in the Family Court, but it’s often a costly and stressful process.
“Property settlement for de facto couples is dealt with the same as married couples,” said Amy Honan, Director of Michael Lynch Family Lawyers.
Loans from parents can further complicate the situation, explains Ms Honan.
“It can be difficult in family matters to prove that money given is actually a loan,” she said.
“If a party is loaned money and it’s expected to be repaid, it is important to draft up a loan agreement. It’s evidence to show that it’s a loan to be repaid and not a gift.”
It’s also important to establish whether you want to hold the property as joint tenants or tenants in common. Most married couples choose joint tenancy, as it means that if one partner dies, the property automatically passes to the other.
In a “tenancy in common” arrangement, each party does not need to have an equal share, and if one party dies, their share forms part of their estate, and is divided according to their will.
It’s worth discussing with a lawyer which type of ownership is most suitable at the start of your property search to avoid a rushed decision during the settlement period.
Is buying property before marriage the new normal?
Sydney marriage celebrant Jessie Cacchillo believes that although couples are choosing to get married later in life, they are still happy to make the financial commitment of buying a home together before tying the knot.
In her opinion, couples are choosing to buy property when they are financially ready, rather than following the more traditional model of marriage first, home second.
“Engagement periods are a lot longer than they were. Couples are more confident in buying the house prior to the marriage,” she explained.
Ms Cacchillo estimates 65 per cent of couples she has wed have already purchased a home prior to their wedding. Most of them were already living in it together, while those who hold off on moving in together until after the wedding are in the minority.
She added that some couples were choosing to buy off the plan, and would move in after the wedding when their home was built, giving them the feeling of living in a brand new home as they start a new chapter of their lives.
“I think couples are being practical, they just do whatever needs to come first. It might take the some of romance out, but I guess it offers stability instead,” she said.