For a first-time property buyer, when you don’t yet have a solid understanding of the ins and outs of the property industry, taking that first step towards home ownership can be daunting.
There’s a lot to consider before stepping onto the property ladder. And it isn’t as simple as going from the bottom to the top. You have to climb one rung at a time: do your research, ask questions and put yourself in the hands of people with in-depth industry knowledge.
One concern that comes up for most potential property buyers is the issue of affordability. Carl Coetzee, CEO of BetterBond, says that it might be wise to consider co-ownership ‒ an accessible and certainly a more cost-effective way for people to enter the property market.
“Assessing affordability is the first rung on the ladder to qualifying for a bond. One way to make it more affordable is to purchase property with a friend, partner or parent,” says Coetzee.
“There is no limit to the number of individual applicants that can be included on a title deed owning a single property. Sharing the weight of this large financial investment can make it possible for many people to enter the property market who might not otherwise have been able to.”
The bond originator encourages people to apply for pre-qualification as the very first step to securing a bond. Pre-qualification is the process whereby the size of the bond the individual qualifies for is determined. A pre-qualification certificate can be issued within 24 hours and is typically valid for three months, assuming your financial position remains the same in those three months.
Coetzee adds that a key benefit of pre-qualification is that it demonstrates to sellers that you are a serious buyer as you have already gone through the process of thoroughly assessing how much you qualify for.
BetterBond handles clients’ home loan applications (at no charge), submitting to multiple banks to find the best deal available. They also offer free services online, including an affordability calculator which calculates the size of bond you could potentially qualify for based on your current income and expenses.
So, what are the pros, cons and considerations of property co-ownership?
According to the Stats SA General Household Survey 2018, around 35% of South African households own their property (with 18.3% owned by an individual and 17% owned jointly).
Coetzee explains that there are obvious benefits such as sharing the costs and maintenance of a property, but it is very important for applicants to know exactly what they are getting into.
“There are certain things you should consider when deciding if co-ownership is for you. For example, is the person you are looking to purchase property with someone you are willing to enter into a financial agreement with? Trust is very important,” he says.
It’s also imperative for potential co-owners to have an in-depth discussion about how the living arrangements will work. Who will live on the property (consider that co-owners might have partners or dependants who will also live there)? Will the cost of maintenance and repairs be shared equally? Will bond repayments and the payment of rates be shared equally? What will the rules of conduct be for all owners and tenants? What happens if a party is unable to make payments anymore? If you’re unsure of how to answer any of these questions, seek advice from those in the know.
“You have to ask the right questions and ensure you are well informed before going into this kind of partnership. Once you have decided to go ahead, a written agreement must be drawn up at the outset outlining every detail of the arrangement,” Coetzee explains.
“All terms must be agreed upon in this legally binding contract to avoid any potential issues or confusion down the line, especially if all partners are equal in the contract as no one party then has the authority to make decisions unless all are in agreement.”
The co-ownership agreement should entail who will live on the property; who will pay or contribute towards deposits and initial payments for the property; how ownership will be shared (it is automatically equal if not stated otherwise); who will be allowed to draw funds from the bond; what will happen in the event of the death or incapacitation of one of the co-owners; what will happen if one or more parties in the contract wish to part ways or sell the property; how profits or losses on the property will be split; and anything else that might result in potential disputes.
That said, this type of contract is a private agreement between co-owners and does not impose rules on third parties. As far as banks are concerned, for example, you are still equally liable for repayments on the loan. So, if you default on payments, the bank can recover the full amount from any or all co-owners.
“Co-ownership makes it significantly easier to enter the property market, especially in light of the current economy where money is tight for most. But before entering into such an agreement, you have to consider all factors of the arrangement carefully and in great detail,” says Coetzee.
“Clarity is key to a successful co-ownership agreement. All co-owners must agree on how things will work upfront, leaving no room for ambiguity.”