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Co-ownership on the rise in Metro Vancouver housing market
Can’t break into the sky-high Lower Mainland housing market? Perhaps it’s time to consider co-ownership, a creative option of sharing the financial burden of buying a home.
Co-ownership is a way of buying real estate with one or more individuals. They could be family members or friends and the ownership percentage of the property can vary depending on the needs and financial resources of the co-owners.
For example, it could be a 50-50 split between two individuals or a 30-70 split, or a three-way split between three parties. A significant benefit of co-ownership is that each co-owner can have their own mortgage to cover their percentage share of the cost of the home.
Samantha Gale, CEO of the Canadian Mortgage Brokers Association – British Columbia, says co-owners become “tenants in common,” which means they have exclusive ownership of their percentage of title.
“Generally, the ownership percentage of a tenant in common interest will reflect the respective contributions from co-owners of the deposit and closing costs, and ongoing obligation to pay for the mortgage and maintenance costs, such as 50/50 or 33/67,” she says.
Usually, the co-owners will divide the property into exclusive use areas, which may be entirely separate suites, or just separate bedrooms with the balance of the house being shared, adds Gale.
However, decisions about sharing costs and exclusive use areas can be complex, as co-owners typically enter the process with different amounts of down payment and income levels to service the mortgage and maintenance costs.
“To complicate matters, houses are rarely set up perfectly for co-ownership, such as with two perfectly equal suites or bedrooms, and co-owners have to make difficult decisions about how to split up uneven exclusive use areas and/or how to pay for renovations to these areas,” says Gale.
She recommends that the parties have a good understanding of how their co-ownership will work and ensure that their agreement is written down in a legally enforceable form.
“Co-owners should consider hiring a lawyer to draft a formal agreement for them – it will likely not be needed until there is a hiccup in the relationship, but if there is a dispute, the agreement will be vitally important to resolving the dispute,” says Gale.
Ryan McKinley, senior mortgage development manager at Vancity agrees, noting that Vancity strongly recommends that individuals enter into a co-ownership agreement that sets out the ownership rights of both parties and provides for an equitable distribution of the property if the relationship ends, or the property needs to be disposed of for any reason.
He points that people have always been able to co-own and it’s easy enough to put two people on the land title. What’s difficult is to be able to figure out what happens if someone wants to sell their share, or becomes disabled, gets married or passes away.
“Basically, this agreement ensures that the investment of all buyers is protected,” he says.
Vancity’s Mixer Mortgage is specifically designed for first-time homebuyers who want to share the cost of buying a home with one or more friends, roommates, co-workers or family members.
“We have the ability to split mortgage terms,” says McKinley. “For example, if two people or two couples are taking on half a million dollars of debt, and $200,000 is earmarked for one person and $300,000 is earmarked for the other, those people could potentially pick different terms, different rates and different amortizations that are more applicable to them. So, while everyone who owns the property is still responsible for the debt, they can earmark their own debt and pick their own repayment terms.”
While Vancity doesn’t track co-ownership mortgages separately, McKinley says there is anecdotal evidence that more people are considering co-ownership because for many potential buyers, it’s the only way to get into the housing market.
“More recently, I’ve seen co-ownership between family members, especially between parents and children,” he says. “Years ago, if they were able to do so, parents would help their kids with the down payment on a house, but down payments aren’t $25,000 any more. So rather than just gifting dollars to their kids, I’ve seen more parents co-own with their children, which is also an investment for them.”