With volatile interest rates, a soaring cost of living and an overall challenging economic outlook for the foreseeable future, sharing the costs of getting into the property market seems like a perfect solution for many South Africans.
For married couples, entering into a purchase jointly may be entirely natural, with any unforeseen circumstances being covered by pre-nuptial agreements, as long as you’ve thought through your marriage contract carefully. But when friends, siblings, parents and children or an unmarried couple enter into such an arrangement, it is just as important to ensure a watertight contract is in place to cover all eventualities.
“We should never be lulled into a false sense of security because we are related or in love with our purchasing partner; life may throw any of us a curved ball at any time and the circumstances of one or other or both the partners may change,” says Andrea Tucker, Director of MortgageMe. “Drawing up a partnership agreement may not feel very conducive to a harmonious relationship, nor very romantic for couples, but life happens, and we must be realistic in creating a document which protects both parties equally,” she adds.
Not all parties, however, are necessarily equal. This may be a 50/50 arrangement or there might be disproportionate contributions by each of the partners, depending on the individuals and circumstances at play. “Purchasing partners can decide whether to ‘pool’ their salaries or contribute to the property proportionately to their individual earnings. Financial institutions are very amenable to granting mortgages to more than one party for a single property, providing each complies with their qualifying criteria, which includes having a good credit standing,” Tucker explains.
Another financial consideration to talk about at the outset is the possibility of opening a joint bank account to pay for property-related costs like bond repayments, insurance and rates and taxes. When managed well, a joint account can make splitting costs fair and easier to track, and a great way to keep money aside for a rainy day, or an unexpected home repair.
So, other than how to finance the deal, what else do we need to consider and to include in our agreement before making an offer on a property together with someone else?
What exactly is each party bringing to the deal?
The percentage of ownership needs to be very clearly defined, from the deposit, to the respective shares of the repayments, running costs etc. Even who brings what items of furniture into the house. “In the offer to purchase, and more importantly, on the title deeds, the shareholding of each person should be recorded, and this will go a long way to mitigating any issues when the time to sell the property comes. If the shareholding transfers into one of the names only, it’s important to be aware that a lawyer would need to do this and that costs will be incurred,” says Tucker.
Keep in mind, however, that no matter what your percentage ownership in the property is, you and your co-owner are equally responsible for the repayment of your monthly bond instalment. Banks insist on joint and several liability, which means that both you and your partner are responsible, together and individually, for the full loan amount
Dissolution of the agreement
When entering into a purchase agreement, think ahead to the eventual sale, which may be a mutual decision, but which may come about when one of a non-romantic partnership meets someone, or gets a new job and needs to relocate, or is retrenched and can no longer afford their portion. Or even death. “How will you dissolve the partnership and divide any proceeds of the sale needs to be included in the contract? Property is not a short-term investment, so forward-thinking is imperative. In order words, make sure you have an equitable exit strategy,” she adds.
In between the purchase and the sale, and assuming you will be living together in the house, another factor to consider is how major decisions will be made. Examples include property upgrades, decorating, and rules around shared spaces such as the kitchen and bathrooms.
These are just some of the potential sticking points in buying a property jointly with someone else. But, provided you think and act carefully, it is an excellent way of entering the property market and getting a start using the power of two incomes.
Tucker says, “If approached in the right way joint purchasing is a way of encouraging more people to own their homes. This roots them in the community and in the country. It’s good for the economy and enables more entrants into the property market. If buyers pick their partners – and their houses – carefully, it is a win-win situation for everybody!”