In a nutshell:
- Even with house prices and interest rates down considerably in recent years, buying a house is still a huge financial commitment. Pooling resources with friends or family can be a great way to get into a property sooner and help lighten the financial load of ongoing costs.
- While there are plenty of benefits to going down the co-ownership route, it's also important to have a clear understanding of the potential risks and challenges (and a plan for managing them) before you dive in.
- It's always a good idea to have a Property Sharing or Co-ownership Agreement in place in any co-ownership scenario, to ensure your personal and financial interests are protected—and you should always seek independent legal advice as part of the process.
- In New Zealand, different banks take very different approaches to co-ownership lending, meaning the right lender for you will be heavily dependent on your situation and who you're buying with.
There are some things in life that are just better when they’re shared. Case in point: all the costs and responsibilities that come with owning a house.
Even with interest rates and house prices down significantly over the last couple of years, buying a home is still a huge financial commitment—especially if you’re going it alone.
That’s why, these days, more and more Kiwi are teaming up with friends or family to help them get onto the property ladder instead.
But while going halves on a house with your bestie (or your brother) has lots of benefits, there are a few important things to bear in mind if you’re thinking about going down the co-ownership route.
First up, what are the benefits to teaming up with friends or family to buy a house?
Well, the most obvious one is that pooling your financial resources with someone can not only make it a whole lot easier to get into a home in the first place, but to manage all your ongoing costs as well.
Perks of going down the co-ownership route include:
- Getting into your first home sooner: saving up a house deposit can take years—but when you’ve got two (or more) people working towards the same goal, instead of just one, that can shorten your timeline significantly.
- Improved borrowing power: with multiple deposits and incomes, you’ll have access to a much wider range of properties than you’d be able to afford alone.
- Potentially better interest rates & cashbacks: the golden number in the deposit space is 20%—anything less means you’ll pay a premium on interest rates and (probably) get a smaller cashback from the bank. If teaming up with someone gets you over the line, that can make a huge difference.
- Having someone to share the financial load with: it means you’re not shouldering the cost of loan repayments, rates, insurances, etc. alone. And when you’ve already got a built-in flattie, taking the next step and getting someone else in to help cover costs can feel like less of a compromise.
What are the key things to think about when it comes to co-ownership?
- What happens if one of you is contributing more than the other?
- What happens if you can no longer afford the loan?
- What happens if one of you wants out?
- What happens if one of you gets sick or passes away?
- What happens if the relationship turns bad?
- How do you feel about sharing details of your financial situation with this person?
When you go in on a house with someone, your financial wellbeing is effectively tied to theirs for the next 30 years—or at least until one (or both) of you decides to sell up—so there’s a lot of trust involved.
With that said, here are the key questions to consider and discuss if you’re thinking about going down the co-ownership route:
1. What happens if one of you is contributing more than the other?
When you’ve got two or more people going in on a house together, this is a super common scenario—one person either fronts up more towards the deposit, or they earn more so can take on a bigger share of the loan repayments. While that’s all well and good, it’s important to think about what it means in terms of who owns what (as a proportion of the property) and how you’ll manage that when it comes time to sell up or buy out.
2. What happens if you can no longer afford the loan?
You’re free to divvy up mortgage repayments however you like, and if you’ve decided to split ownership 60:40, for example, you can even set up separate loans to reflect that. But it’s important to note that, should things go wrong—and one person can no longer afford their share—each borrower is considered to be jointly and separately liable for the entirety of the loan, meaning if one person can’t pay, the bank can pursue the other for the full amount.
3. What happens if one of you wants out?
Say a few years down the line, one of you decides you want to move out—maybe head overseas—or go in on another house with your partner. Then what? If they still want to retain their stake in the property, but won’t be living there, will they still be responsible for maintenance costs? Can they get a tenant in to help cover their share of the mortgage? What happens if you want to sell up, but they don’t? You can’t plan for everything, but you’ll want to at least talk through the most likely scenarios (and document your options in terms of processes and exit strategies) before forging ahead.
4. What happens if one of you gets sick, or passes away?
It’s not something you ever want to have to think about, but when your finances are tied up with someone else’s—and you’re relying on them to help keep a roof over your heads—it’s an important conversation to have. To give everyone peace of mind, you’ll want to make sure you’ve each got the right insurances in place (income or mortgage protection, trauma, life) and that you’ve got your wills sorted, too.
5. What happens if the relationship goes bad?
Even if everyone goes in with the very best of intentions, it can happen. And without the right protections in place, there’s scope for things to get nasty (and expensive). That’s why it’s important to have a formal legal agreement in place before you buy, clearly stipulating who gets what in the event the relationship ends—so nothing’s left up for debate.
6. How do you feel about sharing details of your financial situation with this person?
It’s not a risk as such—more just something to be aware of—but as part of the loan application process, you’ll each need to provide details of your income, debts and expenses.
How do you manage the risks of co-ownership?
- Seek your own independent legal advice as part of the process.
- Once you’ve discussed all the risks & considerations, and agreed on a way forward, get a lawyer to document absolutely everything in writing via a Property Sharing or Co-ownership Agreement.
- Chat with a good mortgage broker for guidance.
Seek your own independent legal advice—and get a lawyer to document absolutely everything in writing
A Property Sharing or Co-ownership Agreement is a formal, legal document that works a bit like a prenup, except specifically for friends and / or family going in on a house together.
It’s designed to protect everyone’s personal and financial interests in a co-ownership situation, by clearly outlining who gets what, who’s responsible for what, and processes for handling potential disputes or changes in circumstance.
Having one in place is always a good idea in a co-ownership situation, regardless of who you’re buying with.
It might sound over the top, but putting everything down in writing gives you a clear path forward—so you know where you stand, and what your options are—if and when any issues do arise, helping to take a lot of the stress out of what can otherwise be a pretty emotionally-charged situation.
The sorts of things a Property Sharing Agreement should cover include:
- Each person’s share of the property as a percentage
- How much each person will contribute towards the deposit
- How ongoing costs will be split—like mortgage repayments, rates, insurance and other expenses—and what happens if someone’s circumstances change and they’re no longer able to meet their obligations.
- Who gets what if the property needs to be sold
- Processes for managing the sale of shares in the property—when and how this can happen—and one party buying the other/s out.
- Systems and processes for managing any maintenance and repairs—seeking multiple quotes, etc.
- What happens if one party should get sick or pass away.
- Processes for addressing disagreements or disputes that may arise.
Once you’ve discussed and broadly agreed on how you want to handle everything, get a lawyer on board to draft the agreement up for you. Then, each party should seek their own independent legal advice before signing, to make sure it reflects their best interests.
It’s also a great idea to review your Property Ownership Agreement every few years or so, and update if needed—especially if your circumstances change.
Chat with a good mortgage broker for guidance
When you’re looking at buying a house with family or friends, there are a lot of moving parts to consider—from all the legal stuff, to getting your choice of lender and loan structure right.
A good mortgage broker can talk you through what’s required and help you work out the best approach for you and your situation.
Which bank is the best when it comes to buying with friends or family?
- Different banks treat co-ownership situations very differently, depending on who you’re buying with (i.e. whether it’s friends or family)—so this is one scenario where your choice of lender can have a huge impact.
New Zealand banks are the same in a lot of ways, but how they handle co-ownership situations isn’t one of them.
Different banks have vastly different policies in this space—and different rules that apply depending on who you’re borrowing with—meaning you want to be super picky about choosing the one that’s going to be best for you and your situation.
If you’re buying with friends
When you’ve got two or more unrelated parties going in on a property together—i.e. where your wider finances aren’t shared—it’s what’s known as a multi-household scenario.
Some lenders take a super simple approach to multi-household lending. They’ll look at the big picture of your combined deposits and incomes, and as long as the numbers stack up, they’re generally happy to give you a loan.
Other banks have strict affordability criteria, where—even though you’ll be working together to cover the loan repayments—they’ll want each borrower to be in a position to service the entire debt in full.
That doesn’t mean they’re not an option, but it can make them trickier to work with unless you’ve both got really strong incomes (in which case you probably wouldn’t be looking at buying with friends to begin with).
If you’re buying with immediate family (i.e. parents, siblings)
Buying with immediate family can be a little more straightforward—but again, it depends on the lender in question.
Even though it technically still counts as a multi-household scenario, some banks will treat family members buying together (and planning to live together) as a single household instead—which can just help to make the process of getting a loan that that little bit simpler.
If you’re looking at going down the co-ownership route and would like some guidance around the process—and the right approach for you—get in touch for a chat with one of our expert mortgage brokers today.