Buying a House with Friends: A Guide to Co-Ownership Agreements and Hidden Risks

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With house prices and living costs where they are, buying a home solo can feel like an uphill climb. It is no surprise that teaming up with friends, siblings, or extended family to step onto the property ladder is an option many New Zealanders are exploring.

Pooling your deposits and splitting the mortgage payments can be a creative way to break into the market years sooner than you could alone. But while you might be great flatmates right now, property ownership is a serious, multi-decade legal and financial partnership. It is a space where a casual handshake agreement can quickly lead to complicated financial fallout.

If you are considering teaming up to buy, here is a practical look at how banks evaluate co-ownership, how the legal structures work, and the essential protections you must have in place from day one.

The reality check: weighing up the pros and cons

Before looking at open homes or speaking to a bank, it pays to have a completely transparent conversation with your potential co-owner. While the financial benefits are immediately obvious, the risks are often invisible until something goes wrong.

How banks evaluate co-ownership applications

When you buy a house with a friend or sibling, the bank does not simply split the mortgage neatly down the middle. In fact, credit assessors look at multi-household applications with extra scrutiny:

1. Joint and several liability

This is the single most important banking concept to understand before signing a contract.

2. Stricter servicing stress tests

Because friends are statistically more likely to experience diverging life stages than a married couple—such as moving overseas, changing careers, or meeting new partners—lenders evaluate affordability conservatively.

While some banks will combine your gross incomes into a standard household calculator, others will test whether each individual borrower could carry a substantial portion of the loan on their own before issuing an approval.

3. The impact on your future borrowing power

If you decide to buy your own home or an investment property a few years down the track, that shared mortgage doesn't simply disappear from your record.

Entering a co-ownership arrangement without an exit plan can make it significantly harder to secure finance on your own later.

Understanding Joint Tenants vs. Tenants in Common

When you purchase a property with someone else, your conveyancing solicitor will advise you on how to register the title. In New Zealand, there are two distinct ways to own property jointly, and your lawyer will help you choose the right one for your situation:

Setting the rules with a Property Sharing Agreement

While we handle the bank's requirements, your solicitor handles your legal protection. Entering a co-ownership arrangement without a formal legal agreement is a massive financial risk—and many mainstream banks will actually make a signed agreement a mandatory condition of your mortgage approval.

A Property Sharing Agreement (PSA) is a binding legal contract drafted by your property solicitor. It acts as the operational rulebook for the property. Crucially, each co-owner should receive independent legal advice from separate solicitors to ensure their individual rights are protected.

A well-structured Property Sharing Agreement covers:

• Equity splits: Documenting the exact percentage of ownership and how initial deposit contributions (including KiwiSaver withdrawals and parental gifts) are credited.
• Ongoing expenses: Outlining exactly how regular mortgage payments, council rates, house insurance, and utility bills are split and funded.
• Maintenance and repairs: Establishing a shared maintenance reserve account and setting spending thresholds for routine upkeep vs major structural renovations.
• The exit strategy: What happens when one person wants to move out, travel, or sell? Does the other owner have a right of first refusal to buy them out? How is the property valued if there is a disagreement?
• Default mechanisms: Setting clear, legally enforceable steps if one party fails to meet their share of the mortgage payments.

Managing partner risk under the Property (Relationships) Act

This is an area of property co-ownership that catches many friends completely off guard.

In New Zealand, the Property (Relationships) Act 1976 governs how assets are divided when romantic relationships end. As a general rule, once a couple has lived together in a de facto relationship for three years (and occasionally less), the home they live in can be classified as the "family home" and become subject to an equal 50/50 division.

Consider this common scenario: you and a friend buy a townhouse together. Two years later, your friend’s partner moves into the spare bedroom. If they live together in that house for three years, that partner could potentially establish a legal claim over your friend's share of the property if they break up.

Questions to ask yourselves before signing an offer

Before you start looking at open homes, sit down with your co-buyers and have an open, candid discussion:

• Do your investment timelines match? If you plan to hold the property for seven years to build capital growth, but your friend wants to sell after two years to fund a business venture, your goals are fundamentally misaligned.
• Are your financial profiles balanced? If one buyer brings a large cash deposit and a spotless credit history, while the other brings minimal savings and short-term debt, the stronger buyer is essentially underwriting the risk of the other.
• How comfortable are you discussing money? If you find it awkward to split utility bills or address household expenses right now, navigating a 30-year mortgage and emergency maintenance costs together will be challenging.

How we help structure co-ownership mortgages

Buying a home with friends or siblings can be a viable, rewarding way to secure your first property, but it is not a casual arrangement. It requires deliberate planning, clear boundaries, and the right legal framework.

At Home Loan Factory, we regularly help multi-party buyers structure their lending cleanly. We examine your combined income, stress-test your borrowing capacity across multiple lenders, and coordinate with your legal team to ensure your mortgage structure aligns with your long-term plans.

Considering teaming up to buy? Get in touch with the team at Home Loan Factory today to explore your options with a clear, entirely confidential, and zero-obligation chat.