Housemate horror: How your flatmates affect your mortgage rates

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Kilian Padstow| The New Daily| 25 February 2020

https://thenewdaily.com.au/finance/your-budget/2020/02/25/housemate-credit-rating-mortgage/

Share house living is common practice among money-conscious people, but research shows picking bad housemates could cost Australians almost $180,000 in later life.

The exorbitant expense arises because renters typically share the responsibility for paying bills and rent on time.

This means if one person misses the due date – or simply doesn’t pay – it will hurt their housemates’ credit ratings.

With mortgage rates ranging anywhere from 2.8 to 4.8 per cent, much can hinge on those ratings.

For an average-sized mortgage ($357,000), an additional 2 per cent would cost a borrower an extra $177,607 over 25 years, according to ratings agency Credit Simple.

That’s an extra $7104 every year.

Although not everyone will be forced to pay quite that much, Credit Simple CEO David Scognamiglio said it highlights the importance of picking good housemates.

“The odd missed bill adds up,” Mr Scognamiglio said.

“What seems like a harmless slip up can come back to bite you in the future – whether it was you or your flatmate handling the share house finances.”

What’s more, the black marks housemates leave on your credit rating will remain there for five years.

Protecting your credit rating

Anthony Justice, chief executive of online mortgage broker Uno Home Loans, told The New Daily renters should be “super careful” if their name is listed on the lease or bills.

“Sometimes it’s just not doing your admin properly that causes these problems,” Mr Justice said.

This is especially true when moving house.

Mr Justice said renters often forget to remove their name from the lease and bills when they move, placing their credit rating at the mercy of their former housemates.

“All of a sudden those bills don’t get paid for six months,” he said.

“You need to be really organised and make sure if your name is on something that it gets paid.”

Although it might not undo the damage caused by a bad housemate, individuals can boost their chances of getting a better mortgage rate by ensuring their spending habits are stable and sustainable.

Mr Justice said anyone hoping to take out a home loan should ideally spend their money as though they’ve already got one, to demonstrate their financial management skills.

How to handle horrible housemates

Tenancy laws in Australia mainly focus on the relationship between landlords and tenants.

Unfortunately for people living with a freeloading flatmate, that reduces their legal options.

Tenants Union of NSW senior policy officer Leo Patterson Ross told The New Daily the best way to get bad tenants to pay their share of living costs is to discuss it with them.

“If you can talk it out, then that’s going to be the best option,” he said.

But sadly that might not be enough in some situations.

If the problem housemate still refuses to pay what they owe, it’s important to understand what kind of legal relationships everyone in the house has with one another.

In Australia, there are two main types of housemate relationship:

Co-tenant relationships, in which all parties have signed the lease; and

Head tenant/co-tenant relationships, where one tenant is on the lease and acts as landlord to the other housemates.

In a head tenant/co-tenant relationship, the head tenant has the right to evict sub-tenants who don’t pay their share, as they have many of the same powers the landlord has.

Although that may sound appealing, head tenants are also solely liable for paying the landlord and will be the ones on the hook if their housemates run off without paying.

Co-tenants don’t have the power to legally evict each other, and changing the locks while a bad housemate is out is illegal, Mr Patterson Ross added.

Co-tenants are also ‘jointly and severally liable’ for the rent – meaning everyone who signed the lease is fully liable for the rent and the landlord can chase any of the lessees for their money.

Ironically, landlords often chase the tenants who have paid their rent because it’s a “safe bet” they’ll have the money.

Renters can then take legal action against their co-tenants to get back their money. But as both tenants are private citizens with their own arrangement, this must be done through the local courts rather than a civil and administrative tribunal. ffffffff

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