What you need to know before you co-buy property with your partner
Co-purchasing gives new buyers foothold in the market quicker
Affordability in the current environment where the economy is declining, jobs are scarce and house prices high, may lead you to co-purchase property with your living partner, regardless of your marital status.
Carol Reynolds, Pam Golding Properties area principal for Durban Coastal, says she generally favours co-purchasing as it often enables entry into the property market – making a property purchase more affordable as the costs are shared.
Hayden Giger, growth head at FNB Private Bank lending, says joint bond applications account for 40% of FNB’s home loans book and vary in terms of co-ownership arrangements (married, unmarried, etc).
“Co-ownership of properties is nothing new. However, with finance being a highly emotive subject, it makes sense to draw up an agreement before you co-purchase. This is not a legal requirement but will certainly help if the relationship sours,” he says.
When you jointly purchase property, the property is registered in both your names. A joint offer to purchase means that both your incomes are considered when the bank is looking at granting you a home loan.
Giger says although FNB Home Finance offers a split billing option, which allows for up to 13 different debit orders, not all banks allow this. You may need to set up the debit order from one partner’s account even though the property is registered in both your names.
Yvonne Viljoen, property finance specialist at ooba, says at Absa, you and your partner can each choose what share of the loan you wish to repay. The bank will then issue two separate debit orders on the same account with separate instalments.
Before you buy
“Before you jointly purchase a property with a partner, you should discuss how you are going to deal with origination costs which include transfer duties and legal costs as well as ongoing costs such as rates, taxes and maintenance.
“This is particularly important if you are not married, in which case you also need to discuss how the property would be disposed of in the unfortunate circumstance of your relationship not working out,” Giger says.
Reynolds says she often advises clients who are co-purchasing property to treat it as a business transaction and to have a contract drawn up. She says when you sign the offer to purchase, you can insert both your and your partner’s names under “purchaser” and you can stipulate the respective shareholding.
Unless otherwise stated, the assumption is that you have agreed to a 50/50 equal shareholding.
Lanice Steward, head of training for Pam Golding, says it’s important that both names are listed on the purchase document. ”Having your name officially on the bond papers is essential as you will have no claim if the property is not registered in your name,” she says.
Reynolds says the biggest pitfall is equal liability in the transaction. “If one party fails to meet his/her obligations it can negatively impact upon the other party. This is why it is advisable to have a contract drawn up to account for one party failing to perform,” she says.
Another major obstacle that arises is when one party wishes to sell and the other doesn't. A contract to cover any potential sale will alleviate this pitfall.
Reynolds says usually the owners are given a pre-emptive right to purchase any remaining shares in the property before the property is taken to market.
What should you include in an agreement before you buy?
David Dewar, director at Thomson Wilks Attorneys, shares these tips:
- Your contribution as a partner includes physical property, such as furniture, as well as any renovations or additions to the property. As far as possible, ascribe a value to your contributions.
- Decide who pays which costs for the property. It’s advisable to keep a record of all payments, maybe even to the point of having financial statements. “Your property is an investment and should be treated as such,” he says.
- If there is an income stream, for example, the property is being rented out, establish how this will be divided.
- Decide upfront on how decisions will be made. As difficult as it may be, consider what would happen if there is a breach of trust or a conflict of interest? It might be worthwhile to appoint and include a mediator in the agreement you draw up prior to purchasing property together.
- Decide how your assets will be disposed of in the event of the relationship ending or the death of you or your partner. Will your primary residence be sold, and the profits after debts and other taxes divided equally among your children or beneficiaries? Or will it be put into a trust, so that your partner and/or children are able to make use of the property in perpetuity?