Keen to own your own home, but lacking the financial resources
Joint bond ownership is one way to increase your chances of having your bond application approved, and getting yourself and a partner into the property market.
Here’s everything you need to know about becoming a joint bondholder.
Will the bank approve a joint bond?
Joint bond-ownership isn’t discouraged by the banks, and these days it is increasingly used by cash-strapped couples, family members, or friends as a convenient and relatively inexpensive way to buy a home.
The banks are happy to have joint bond debtors as this reduces their chances of being let down on the bond payments.
Often this will help the occupant move into a better property than they would have been able to afford on an individual bond.
But, what this means is that each of the partners is responsible for, and can become liable if another partner defaults on their bond repayment.
Generally, banks and bond originators require bondholders to purchase insurance and life cover to cover the bond in the event of death.
Joint bond application
Joint bond applications require the same processes and documentation required for an individual application.
The difference is that in these arrangements the bank will take into account the joint incomes and credit scores of everyone listed on the bond application.
When joint applications for bonds of this kind are approved by the banks, the signatories to the arrangement are always assumed to be equal (50/50) shareholders in the property.
For example, if one partner has 50% of the property and the other two 25%, by law the exact shareholding of each partner has to be stated in the Deed of Sale.
This will be registered to reflect the ownership structure at the Deeds Office.
Importantly, by law, joint bondholders have to accept that they are responsible for the total monthly bond payments.
If one of their partners defaults on their monthly payment, the others can and will be held responsible for covering the amount owed in addition to their own repayments.
What to consider before signing a joint bond application
Co-owning a property
Once the property is paid off, you will co-own the property with whoever your investment partners are.
It’s advisable to put some thought into choosing your investment partners, and have a clear idea of their motives and intentions regarding the purchase of a property.
Generally, the bond repayment amount is debited from a single bank account, meaning that financial matters between the partners needs to be finalised and agreed upon beforehand.
Joint liability
By signing a joint bond agreement, you and your investment partner(s) are jointly liable for the repayments, taxes, and any other legal and administrative fees associated with the purchase or sale of the property.
Equally, the credit record of each partner will be affected if there is a default on any payment.
For these reasons, if you’re considering co-purchasing a home with your unmarried partner, a friend, or family member, it’s best to first consult an attorney.
Your attorney will draw up a partnership agreement detailing the finer details of the arrangement, the share of ownership, and the conditions for dissolving the partnership.
Prepare for any eventuality
Be prepared for any eventuality before signing a joint bond agreement.
This involves making provision for the dissolution of the partnership under various circumstances including:
- times of financial stress (or inability of one or more partners to meet their repayment commitments);
- divorce or separation of couples;
- dissolution of the partnership;
- the sale of the whole or portions of the property;
- and even death.
Selling a share of the property
At some stage, one of the partners/joint bondholders will want to sell their share of the property.
In many partnership deeds there are stipulations that this will be done after a specified period of years, but often, too, an option is left for the joint owner to continue as a partner.
If the property as a whole is not being sold, an estate agent will have to be brought in to estimate its value at the time the share is being sold.
The partners taking over that share of the property will be responsible for paying the transfer duty on it, as well as any outstanding rates and taxes accrued by the property.
For example if a share in a property worth R1 million with three partners is sold right now, the transfer duty would be R26,000. A third of this is R8 600.00. The remaining shareholders would have to pay this to legalise their taking over of the sold share.
Tip: Calculate the costs of transfer fees on a joint bond here.
Many joint purchase agreements of this kind are now operating in the buy-to-let market and have played a significant role in bringing more properties onto the market for renting purposes.
