Aspirant buyers struggling to get mortgage bond approval might look at a co-ownership agreement with friends or family. The banks are quite happy to lend a hand…
Although bond applications in the first quarter of this year reached their highest level in three years, aspiring home owners are still struggling to get mortgages. As a result, applying for a joint mortgage bond is becoming more attractive for people trying to enter the residential property market. It is not unheard of for couples, whether husband and wife or about-to-be-weds, to apply for bonds, but the current trend goes beyond this — with friends grouping together to source finance and enter into joint ownership agreements.
Absa Bank’s home loans division says that it does not restrict the number of members.
Furthermore, the lending banks are looking favourably on such arrangements as an alternative to suretyships under which recovery of debt in cases of default is often difficult. Now they prefer guarantors signing as co-owners.
In a recent poll conducted by mortgage originator ooba, 38 percent of people surveyed believe that partnering with friends or relations to get a bond is a positive option. 36 percent of those surveyed were opposed to the option, feeling that it posed too much of a risk, and 26 percent believe that it should be considered but only if absolutely necessary.
The prime market for co-ownership is the first-time buyer, but it may also appeal to investor groups wishing to spread their risk. Those perceiving buy-to-let opportunities ahead as rents continue to rise are a case in point. Others thinking of taking the plunge into a coastal holiday home, where prices are at their lowest for years, may also view
co-ownership with friends or family as a good bet.
However, there are some serious issues with which to contend — and a lot of ducks to be in a tidy row and acceptable to the banks before a
co-ownership mortgage is a proposition.
First and foremost is the need for all partners to be fully in agreement with the venture — percentage of co-ownerships; rental patterns if being shared; rates, taxes, levies and running costs/insurance and so on; letting contracts if the purchase is a buy-to-let venture; and a formal contract/partnership agreement, legally binding on all parties.
The presence of a watertight contract will safeguard against default by any party. The contract must cover such situations as the death of one or more co-owners, or if one of the partners experiences financial difficulties.
Absa home loans also points out that the minimum legal age for ownership of land in South Africa is 21.
Ideally, the partners should have life policies with linked beneficiaries, similar to "key-man" policies in business practices. These will cover a partner’s share of the home loan if a death does occur.
Another important issue is the structure of an exit strategy — perhaps due to a partner’s changing circumstances — or even a marriage or divorce. Absa also stresses that if one or more partners in the co-ownership agreement wants out, the loan must be re-evaluated.
Meanwhile the number of mortgage bond applications in March was at their highest level for nearly three years, reports ooba. Nevertheless, they are still only 36 percent of the application volumes recorded at the peak of the market in May 2007 — which drives home just how the market has collapsed.
The welcome news is that the level of approved home loans also reached a high in March. "Ooba has experienced consistent month-on-month increases in application intake since the beginning of the year; we expect to see this growth continuing," says ooba CEO Saul Geffen.
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