With the average house price now over R800,000, increased cost of living and the average age of the first-time home buyer being 37, applying for a joint mortgage is becoming more of an attractive option for people trying to enter the property market.
In a recent poll conducted by ooba – South Africa’s leading bond originator – 38% of people surveyed believe that partnering with a friend or relation to get a bond is a positive option, as it enables them to secure a mortgage. 36% of the people surveyed were opposed to this option as they feel it would be too much of a risk, and 26% believe that this option should be considered, but only if absolutely necessary.
Saul Geffen, CEO of ooba, says that although applying for a joint home loan with a friend, sibling or partner might be an effective way to secure a bond, especially for first-time buyers, there are a few issues to consider in order to protect your investment.
“It is important to remember that buying a property is a serious commitment, and while buyers may trust and like the person they are applying with, they also need to recognise that additional factors need to be carefully considered,” advises Geffen.
He says that potential buying partners need to ensure that their goals and finances are aligned and every aspect that is agreed upon is covered in a formal contract. “This will make future dealings far simpler as, hopefully, any possible conflicts have been discussed before they become an issue and the presence of a watertight contract will safeguard against any one party backing out at a later stage.”
Geffen says that it is imperative to investigate the financial circumstances of both partners in detail. “Make sure that you know and understand exactly where your partner stands in terms of their finances such as income, monthly expenses and savings and be prepared to do the same. If your partner isn’t happy to disclose this information, seriously reconsider entering into an agreement with him or her.
“The contract should also cover other unexpected situations such as what happens to the property in the event of the death of one of the partners, or if one of the partners experiences financial difficulties.”
In the unfortunate circumstance of death, the property will automatically go into the deceased estate and be dealt with as part of it, in line with the instructions in the will. It is therefore essential that both owners have standing estates in place. “It is also recommended that both owners have life policies in place, which will cover their share of the home loan if a death does occur. This will ensure that the surviving partner does not have to repay the whole bond single-handedly,” says Geffen.
Another important issue to discuss is an exit-strategy. Geffen says it is more than likely that a partner will consider selling the property due to changing circumstances such as marriage or job relocation.
“The day-to-day financial concerns such as who will be responsible for the utility bills, insurance, the hidden cost of repairs and maintenance and who owns and pays for the furniture and appliances will also need to be in the contract. If not communicated, these issues are likely to cause conflict between the joint owners.
“If all possible situations are considered and outlined in a contract before the property is purchased it is far less likely to lead to conflict at a later stage and, more importantly, your investment will be protected,” concludes Geffen.