With the increasing occurrence of people choosing not to formalise their relationships by marrying but living together instead, it is inevitable that they will eventually buy a property together - but there are certain implications associated with entering into financial transactions jointly that should be pre-empted should things go wrong.
As there is only one bondholder, should they need to use their property as collateral at a later stage, perhaps on an overdraft to expand a business, for example, then the person applying for the overdraft has to be the bondholder too.
This is according to Lanice Steward, managing director of Knight Frank Residential South Africa, who says if the couple require a bond, the banks will not issue two bonds on a property - there will only ever be one bond over the property issued to one of the parties, who will be the bondholder and the other partner will stand surety for the bondholder. This means that each person is then liable for their share of the bond.
As there is only one bondholder, should they need to use their property as collateral at a later stage, perhaps on an overdraft to expand a business, for example, then the person applying for the overdraft has to be the bondholder too. Steward says the banks will issue the overdraft facility but will use the entire property as collateral.
Here, careful thought is needed as to who applies for the bond and who is likely to need further loans in the future if the house is to be used as collateral, she says.
When there isn’t a formal marriage, and the partners enter into this kind of arrangement, it will result in the non-bondholder’s portion of the asset being lost should there be a default on the loan or the other person is liquidated, she explains.
“Don’t believe that just because you’re not married you are protected from what happens financially to your partner, even though common law marriages aren’t recognised in South Africa. If the bondholder defaults or is in financial trouble, the home will be at risk as they have entered into the contract jointly.”