Joint Ownership but Split Liability Setup?

Just wondering what is the best and simplest way to purchase a PPOR with another joint owner, at something like 60/40 ownership split but only have 60% of the liability for future loan assessment? Basically only liable for your own portion of the mortgage.

The most commonly heard method will result in banks assessing a reduced portion of the rental income (if the PPOR is ever leased out in future) but assess the full 100% mortgage as your liability. I don't want this for obvious reasons.

We will speak to a broker but I want to understand a little more first.

 

Yes it's doable through a common debt reducer/property share policy.

Essentially you and the party each have their own loans but guaranteeing each other.

 

There is also the alternate servicing policy, where the lender assesses it based on the percentage of your loan liability.

 

Many lenders are offering common debt reducer calculations for this scenario so they only take your portion of the debt for serviceability calcs.

Are you buying the ppor with a spouse or someone else?

 

The loan!
You must both give a mortgage, but you can have separate loans secured by the one property with each of your guaranteeing the other's loan.

If you have other property though you could each borrow against that to fund this new one and not mortgage the new one and have no joint loans, no guarantees and no joint mortgages.

 

It is usually based on ownership percentage as each joint borrower is liable for the whole debt.

 

Not quite sure how this works in practice. I would imagine ""co-ownership"" with a mortagee in possession has some issues that the legalities of title dont address. And they cant easily offer sale of half a property. There may be a compelling drive for the remaining owner to sell or to buy the other half.

 

The mortgagee would take possession and offer the good mortgagor the chance to buy out the bad mortgagor first and if this didn't happen they would sell the property as per usual and split up the proceeds, paying themselves first and then any respective shortfalls from the borrowers.

 

If I am guaranteeing the other half, then in future when I'm applying for a new loan, won't the bank assess me as if I am liable for 100% of the loan (mine and the other half I'm guaranteeing)?

This only applies when I apply for new loans in future and I read that the paperworks can be intensive?

Family member. Exploring ways to set this up so that I can borrow and buy more in future with the least impact.

Is this the same one @Tony Xia recommended? Property Share - CommBank

 

Common debt reducer, alternate servicing both have the same principles.

 

Yes when you are applying for new loans in future - most lenders will treat your existing joint loan at 100% liability however with the alternate servicing, the lender will base it on your 'actual' percentage of your liability. i.e. they will exclude the portion owned by the other party.

With this policy, you and the other party will need to complete a stat dec to confirm how much percentage you a liable for, and also provide bank statements showing the loan repayments on the percentage of the liability.

 

With a guarantee the guarantor is not liable for any of the loan unless the other party, the borrower in this case defaults.

Some lenders, for serviceability, will treat a guarantor as if they are a borrower but others will disregard the loan the guarantor has guaranteed.

This is different to where 2 people are joint borrowers with no guarantees.

 

That rules out some lenders on the Common Debt Reducer products then

 

This is key. Would you say there are enough mainstream lenders who disregard the loan the guarantor has guaranteed? Reading some of the replies, I gathered at least CBA disregards and only take your portion as your liability.

 

It will depend on the circumstances but many will disregard not all though

 

Thats because cba requires the guarantors to be employed when applying for the loan and the guarantor portion is split on a loan itself.

They may ask for confirmation if the guarantors are still working.

 

Both sides will be working at the time of application. One thing that confuses me is that neither of us will be able to service the entire 100% individually (if the other side defaults). Why would CBA approve such a loan? Ie. how can we be guarantors of the other portion if we cannot individually afford the entire 100%? I guess this is when foreclosure comes in.

 

Its often the same for many people jointly owning property. On their own they couldn't service, but combined they can

 

Then why would the bank even consider giving you the loan if you cant service ?

Thats the benefit of a common debt reducer policy.