RHYS DYER | Co-buying bringing home ownership in reach for more young people

Co-buying — when two or more people jointly purchase a property and agree to share ownership — has become a fast-growing trend among South African home buyers. 

While co-buying often takes place between couples, it’s also become popular among friends, business partners and relatives.

This trend recently re-emerged in the US, with a recent article in the New York Times profiling two friends and co-buyers who purchased 22 homes across the country with the reasoning that “houses before spouses” is the way to go. This trend takes home-buying from aspirational to attainable and has been embraced by South African young home buyers, in particular, as a solution to get a foot on the property ladder.

Home-buying: from aspirational to attainable

For many home buyers — especially young first-time buyers — higher interest rates and the rising cost of living has made the dream of buying a home almost unattainable. However, co-buying has emerged as a way for applicants to pool their financial resources and secure a property that might otherwise be out of reach.

In addition to increasing the affordability of buying a home, co-buying also enables home buyers to put down a larger deposit, split the up-front transfer costs, and share property taxes and maintenance costs further down the road.

Co-buying can also improve your home loan approval odds. When multiple parties apply jointly for a home loan, it reduces the risk of loan repayment defaults for the bank. It’s important to remember that your application will only be approved if all parties’ income, affordability, and credit scores meet the banks’ requirements.

Looking to local trends, while 61.1% of the applications received by ooba Home Loans are still from single home buyers, of the joint applications processed, 75.3% were purchased with their spouse, whereas 24.7% were purchased with others. 

These could be siblings, parents, friends, life partners or business partners.

‘Bank of mum and dad’

While co-buying was first made popular by couples looking to purchase a home together, it’s recently become more common among families.

This is especially prevalent among young adults and their parents, with some young adults struggling to afford the purchase on their own and their parents wanting to help them get on the property ladder.

While some may see this as giving certain young buyers an unfair advantage, the reality is that property investments are one of the best ways to create generational wealth. Property is an asset that can benefit the whole family for years to come — especially when the property is purchased with the intention of renting it out to generate income.

Cashing in on buy-to-let opportunities

In major metros such as Cape Town, where residential property prices have increased by an eye-watering 141% since 2010 according to Stats SA, co-buying can help would-be property investors take advantage of valuable opportunities.

The buy-to-let market in the Western Cape hit a record high in September 2023, accounting for 30.8% of ooba Home Loans’ applications received in the region. And with major banks like FNB allowing up to 12 applicants for a joint home loan, it makes sense that family members, friends or business partners would embark on co-buying in a market where home prices are rapidly appreciating.

How a joint home loan application works

The application process for a joint home loan remains largely the same as an individual home loan, except that the bank will consider the incomes and credit records of all parties. This is because the additional parties agree to take on responsibility for the home loan should any of the co-buyers’ default.

Once the application is approved, home ownership is split into percentages based on the number of applicants, so if there are four, each will hold 25%. It's important to note that a new deal will need to be signed with the bank should one or more of the co-buyers withdraw.

The golden rules of co-buying

When there are multiple owners of a single property, things can become complicated quickly — especially if the relationship dynamic changes.

To minimise the negative impact of this scenario, I recommend that co-buyers adhere to the following guidelines:

1. Agree on a vision for the property before making a purchase. All parties must be aligned on how the property will be used — be it to live in, rent out on a long lease or for shorter periods such as on Airbnb. Open communication and a shared understanding are crucial.
2. Have an exit strategy in place. Co-buyers should have a plan in place for what happens if one party wants to sell their share of the property or if there’s a need to dissolve the agreement.
3. Understand the legal implications. A handshake agreement doesn’t cut it here — get it all in writing. Remember that if one party defaults, the others are still on the hook to the bank, regardless of the status of the relationship.

Finally, co-buyers need to be realistic about what they can afford. All parties can get pre-qualified using ooba Home Loans' free bond indicator, which carries out credit checks and helps you identify what size of home loan your combined incomes qualifies you for. This minimises the chance of any party defaulting on their repayments.

Rhys Dyer is CEO of ooba Home Loans.