Disclaimer:
The information on this website is for general guidance only and does not constitute financial or investment advice. Always do your own research and seek personalised advice from a qualified financial adviser or mortgage adviser before making financial decisions. All investments carry risk and past performance is not indicative of future results.
Key Takeaways
- Co-ownership can help buyers combine income and share costs, but lenders still assess the full borrowing arrangement.
- Align intentions on living in or investing before committing.
- Financial transparency reduces disputes and surprises.
- A written co-ownership agreement can record ownership shares, costs, decision-making and exit arrangements.
- Check KiwiSaver residence rules, exit arrangements, ownership type and estate planning before committing.
Schnauer & Co deal with many first home buyer enquiries. Often first home buyers find the conditional stage very overwhelming as there is a lot of new information to process. In this article, we turn the spotlight on the risks of buying property with family and friends.
We suggest you read this article after reading our earlier article "Co-owning property with family or friends" which mostly addresses the benefits of co-ownership.
The Benefits of Co-Ownership
Buying property with family or friends may make homeownership possible when it might otherwise be out of reach, but it also creates shared legal and financial obligations. The main advantages include:
- Combined income: lenders may consider more than one income, but they will also assess the whole borrowing arrangement, debts and credit history.
- Shared Costs: Mortgage payments, maintenance, rates, and other expenses can be divided.
- Shared exposure: if it is an investment or shared-ownership purchase, financial gains, costs and losses need to be allocated clearly.
Key Considerations
Aligning Intentions
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Before buying, discuss whether the property is a home, investment, or mixed-use arrangement. A clear written agreement can reduce future disputes, especially if law, lender policy, ownership plans or personal circumstances change.
Financial Transparency
Co-ownership is a major financial commitment, similar to going into business with someone. Consider whether your co-owners can manage money well, whether they have outstanding debts or financial risks, and whether they are financially stable for the long term. Being upfront about contributions and financial expectations can reduce future conflicts.
The Risks of Co-Ownership
- Decision-Making Challenges: All owners must agree on major decisions like renovations, refinancing, or selling the property.
- Financial Risks: If one owner struggles financially, the others may need to cover their share of the mortgage to prevent default.
- Exit Complications: Life circumstances change, and leaving the arrangement can be complicated, especially if the market shifts or co-owners' financial situations change.
KiwiSaver Considerations
If you are using a KiwiSaver first-home withdrawal, Kāinga Ora says you must intend to live in the property and it cannot be used to buy an investment property. Check your scheme provider's requirements and how the co-ownership arrangement will be documented before relying on KiwiSaver funds.
Protecting Your Interests
Property Sharing Agreement (PSA)
A PSA or co-ownership agreement can record ownership shares, financial responsibilities, decision-making processes, insurance, contingencies and exit strategies. It is not a guarantee against disputes, but clear drafting can reduce uncertainty.
Important: If you co-own property, ask a lawyer about a written co-ownership agreement. Settled.govt.nz says it should cover matters such as ownership shares, liability for costs, insurance, contingencies and what happens if someone wants to sell.
Wills & Estate Planning
What happens if a co-owner dies depends on the ownership type and estate planning. Settled.govt.nz says joint tenancy usually passes the deceased owner's share to the surviving owner, while tenancy in common lets each owner hold a distinct share that can pass to their estate. Ask your lawyer how the title should be held.
New Relationships
If a co-owner wants to move in a new partner, the co-ownership agreement should address how that will be handled. A contracting-out agreement may also be relevant in some relationship-property situations, but that needs independent legal advice.
Legal & Financial Responsibilities
Joint and Several Liability
When co-borrowing, the lender may treat each borrower as responsible for the whole mortgage, not just their share. If one owner defaults, the others may need to cover the shortfall to avoid wider default consequences.
Warning: Settled.govt.nz says a bank may consider your share of the house as your asset but the whole mortgage as a liability, and if one owner cannot keep up repayments the other owners may need to cover the shortfall. Confirm the liability position with your lender and lawyer before signing.
Unequal Contributions
Ownership shares do not have to be equal, but they should be recorded clearly. A co-ownership agreement can define how costs and mortgage repayments are divided, how sale proceeds are handled, and what options exist if one owner wants to sell.
Independent Legal Advice
Each party should seek independent legal advice before committing. Whether one firm can handle conveyancing for everyone, and whether separate lawyers are needed for the co-ownership agreement, depends on conflicts, lender requirements and the lawyers involved.
Final Reflections
Co-owning property can be useful for some buyers, but it comes with legal, lending and relationship risks. Open discussions, written agreements, financial transparency and independent advice can reduce risk before anyone signs a sale and purchase agreement or loan documents.
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