Awkward question when buying a house

Buying a house together is one of the biggest steps couples will take in their relationship, as well as probably the most expensive.

So when it comes time to fork out for a deposit, followed by mortgage repayments, repairs, bills and so on, the question becomes: ‘who pays what?’

In many relationships, parties will be earning different salaries, which most of the time is a small issue. Buying a house however, is a different ball game to splitting a meal at a restaurant or shouting movie tickets for your partner.

According to home loan experts – who often find themselves playing relationship counsellor too – the first question couples need to ask themselves is: “do we even like each other?”

A solid relationship foundation, including open lines of communication and at least some idea of what it will look like in the next five to 10 years is a great way to avoid future angst.

Mortgage Choice broker Deslie Taylor said it was surprising the number of couples willing to take the step of buying a joint property when they couldn’t see eye-to-eye on the basics.

“Too often I see people and as I’m talking to them I’m thinking ‘I don’t even know if you should be doing this. You can’t even make a decision over what colour sofa you want, is this is even really what you want to do?’”

“So my advice is make sure you like each other.”

Sharing the load

For those genuinely ready to take the plunge, the possibilities for buying a home are as diverse as the types of relationships and romantic entanglements that exist.

Ms Taylor says these days, most couples in the property market that don’t have children are very financially independent, with many maintaining separate bank accounts and perhaps then establishing a joint home fund.

“That might be the mortgage payments and the ongoing costs to maintain the home, as in the utilities and whatnot to maintain the home. They’ll sort of then pool that money, even and equitably,” Ms Taylor said.

Even if the contributions are unequal, due to differences in salary or parental contributions, for instance, the vast majority of couples will enter into purchasing a property as joint tenants meaning they each own an equal share of the property.

“Most couples see their assets as joint assets so they each contribute what they can and don’t worry too much about a contribution being unequal,” Home Loan Experts chief executive Alan Hemmings said.

“You’d expect them to see a long-term commitment if they’re buying a house together.”

Becoming financially dependent

It may seem like one person paying more for a joint asset could lead to resentment by that party, however the more common scenario is the one paying less feeling guilty or inferior for not contributing as much.

“I find that when my clients sit in front of me and they do have financial struggles in the relationship, it’s because one party feels as though they’re financially dependent on the other,” she said.

This situation can arise when one partner is staying at home to look after kids, for instance, when they find themselves suddenly second guessing going out for coffee or asking their partner for money to make lifestyle purchases.

“If you are planning on having a family together and all of a sudden income is going to reduce for one party, then ultimately, you want that person to be able to raise those children without feeling guilty that they’re not able to contribute at this point in time,” Ms Taylor said.

“At that point, the discussions that I have with clients are more around making sure that they contribute enough that they’re not going to leave themselves feeling like they’re financially dependent on the other person.

“So if they’re earning around 25 per cent of the income that the other party’s earning, do they then put 25 per cent of the commitment in?”

This is also where discussion about expectations for the future before buying a home is invaluable, so both parties can be on the same page and don’t find themselves in unfamiliar territory and feeling unable to speak up.

“I say to my clients when they’re buying, ‘let’s not talk about what you want to do today, we need to talk about where you’re going to be in five years, because ultimately, that’s going to determine the loan I structure for you’,” Ms Taylor said.

Most people will go back to work after having children at which point they can recommence contributing to the mortgage and other expenses such as childcare fees, out of a genuine desire to do so.

Tenants in common

Of course, not all relationships are young professionals settling down to have kids. Sometimes people can get together having had past relationships and children with separate people, and be looking to purchase a home together, but with added protection.

In the case of joint tenancies, Mr Hemmings explained that when one party dies, the other inherits the entirety of the asset.

This may not always be ideal when children and inheritances are on the cards and the potential is there for people to hold on to wealth.

Therefore, “if people want to have a different ownership percentage then they need to buy as tenants in common,” Mr Hemmings explained.

In the case of tenants in common, parties own a different share of an asset and in the event of their death can will that share to whomever they choose.

He added: “If there is a gift from one of the parents then it’s best that it is made to their child rather than the couple. If they later break up this can help to ensure that their gift isn’t split between the couple.”

If a couple is purchasing property as an investment, tax is another big reason why the asset would be anything other than a 50:50 split.

“Structurally, it makes more sense for one partner to have a larger ownership percentage (generally lower income earner for a positively geared property and vice versa for a negatively geared property),” Mr Hemmings said.

Divorce

Once the plates start flying and couples finally decide to split or seek divorce, ideally they will find a way to amicably divide the asset down the middle.

But as Ms Taylor said, “from what I see in my experience, that does become a bit of a nightmare”.

With things like child custody, courts will often disregard how much each party has contributed in favour of awarding the primary caregiver a larger share.

“It doesn’t matter what you’ve contributed and how much you’ve contributed. It comes down to, from a family perspective, what does it look like? Who’s gonna raise the children, who’s the primary income earner, who’s not,” Ms Taylor said.

“So they won’t disadvantage the person that’s on a lower income having to raise the children. In most circumstances that person will get more of the share.”

The terms of a home loan and the chance of a successful outcome relies heavily on the relationship itself and members’ openness to discussing their needs and situation, which is why experts warn couples not to enter into the decision without having a healthy chat first.

“It all comes down to communication and expectation,” Ms Taylor said.

“And before you go into a property, make sure you like each other.”