Will Kohab make it easier to co-own property?
The world's first co-ownership platform, Kohab, was launched last month amid claims it could be the answer to Australia's home loan affordability issue.
It's a big call given people have always been able to buy property jointly. One could argue that it's more of a marketing initiative - a very clever one at that - than a solution to home unaffordability.
Even Darren Clark, co-founder of Kohab, told 9Finance in March that "Kohab facilitates something that has existed for a while but there hasn't been a public forum, a process, an education that makes sure you're doing the right thing".
Essentially Kohab is an online marketplace that matches people who want to co-own a property, either to live in or rent out as an investment, or for lifestyle reasons, where two or more parties may want to share a holiday home or a second home.
In addition to matching buyers, the platform provides property listings, legal documents and access to mortgage options.
Kohab operates through a tenants-in-common arrangement, rather than the more popular joint tenancy.
Under tenants in common each party holds an individual interest in the property. It can be equal or unequal. If one person dies the deceased's share becomes part of their estate, whereas with joint tenancy their share is transferred to the other owners.
The biggest issue with co-borrowing is preparing for worst-case scenarios.
As a co-investor myself the two main issues I see from a lending point of view are a restriction on borrowing power for each party and the ongoing liability that if one party stops making repayments, for whatever reason, the other one is still responsible.
Kohab claims to have solved the first of these two issues, which would indicate it just may be more than a marketing initiative, although it's important to note that at this stage it still appears to be a work in progress.
"There are mortgage products in the market currently being developed that are changing the way banks address the credit scenario and split loans," says David Dawson, Kohab's CEO and joint founder.
Let me give you an example. Let's say a brother and sister purchase a $1.4 million property together. The siblings own it 50-50 and they purchase the property through tenants in common.
Both parties have a $200,000 deposit (plus savings to pay statutory expenses). They borrow $500,000 each, which means lenders mortgage insurance is not needed.
Now there's nothing new here and, as Dawson agrees, banks have given loans in this type of scenario for decades. Lenders would require both borrowers to prove they could service the whole loan.
This is where the issue of reducing your borrowing power comes in. If one party wanted to take out another loan in their own name, then more than likely the lender would include the joint loan as a whole liability for the one party ($1 million in this example), thereby reducing their borrowing power.
Through Kohab - and my understanding is that this offering is still being developed - the siblings would need to demonstrate to the bank their ability to service their part of the loan only.
As for the issue of one party not keeping up with repayments, Kohab would fall in line with the usual protocol that the other party would be held responsible.
While there is no new development here, Dawson does say that there is an insurance policy under development that should solve this.
"There is a bespoke insurance policy currently being designed exclusively for Kohab co-owners. A policy is taken out on the other co-owner for the purpose of loan repayment in case of default - for example, six-, 12- and 18-month mortgage coverage payment if a co-owner can't pay due to loss of income, disappearance, death, plus other features."
I suspect that this would add to the cost of the loan. Right now the only fee that applies to this platform is the $660 to download the co-ownership agreement, developed by legal firm Sparke Helmore, to accommodate some of the issues of co-buying a property.
Kohab receives a commission from this and on lead referrals from any properties sold through its website (about 80,000 listings on the site through onthehouse.com.au) or mortgage loans written.
Clearly there a few details that still need to be sorted out for Kohab to move from marketing initiative to real game-changer. Once rolled out completely, it will certainly make the idea of co-borrowing far more flexible and easier than it is today.