Can I Buy a Home With Friends? What You Need to Know About Co-Ownership

With property prices making solo ownership increasingly difficult, buying with friends has become a more common path onto the property ladder. But before you start house hunting with your flatmates, there is a lot to consider. This guide covers the legal structures, financial implications, bank requirements, and essential agreements you need before buying property with friends.

Why People Buy With Friends

The maths is compelling. A solo buyer looking at an $800,000 property needs a 20% deposit of $160,000 and typically requires an income of $120,000 or more to service the mortgage. Two friends buying together can split that same $800,000 property with each contributing $80,000, and their combined income makes servicing the loan much easier. For many first-home buyers, especially in Auckland and Wellington, co-ownership is the only realistic way to enter the market at all.

The Two Ownership Structures

In New Zealand, there are two legal ways to own property together, and understanding the difference is essential before you commit.

Joint Tenancy

With joint tenancy, all owners share equal ownership of the entire property. If one owner dies, their share automatically passes to the surviving owners, regardless of what their will says. This structure suits couples or very close friends who want equal ownership and are comfortable with automatic survivorship. Under joint tenancy, shares must be equal (50/50 for two owners, or 33/33/33 for three), decisions must be unanimous, you cannot sell or mortgage your share independently, and any transfer on death bypasses your will entirely.

Tenants in Common

With tenants in common, each person owns a defined share of the property, such as 60/40 or 40/30/30. Shares can be different sizes and can be sold, mortgaged, or left to anyone in a will. This structure suits friends with different deposit amounts, or anyone who wants their share to go to family rather than co-owners if they die. Unequal shares are possible based on contribution, each share can be dealt with independently, and your share passes according to your will rather than automatically to co-owners.

For most friend purchases, tenants in common is the better structure because contributions are rarely exactly equal and you will want your share to go to your family, not your co-owners, if something happens to you.

How Banks View Friend Co-Ownership

Banks are more cautious about friend purchases than couple purchases, and understanding their perspective helps you prepare a stronger application. First, all borrowers face joint and several liability, meaning everyone is responsible for the entire mortgage, not just their share. If your co-owner stops paying, you are liable for their portion too.

Banks also have stricter serviceability requirements for friend purchases. Most require each borrower to be able to service a significant portion of the total mortgage on their own income, which is more conservative than for couples. Friends are also seen as higher risk because they are statistically more likely to have falling outs, relationship changes, or different life trajectories than romantic partners.

What this means practically is that you may not be able to borrow as much as you expect, interest rates might be slightly higher, and some banks will not lend for friend purchases at all. Discussing your situation with a mortgage adviser early helps you understand what is actually possible.

The Essential Co-Ownership Agreement

Before you buy, you need a legally binding co-ownership agreement (sometimes called a property sharing agreement). This document should cover several critical areas.

Ownership Shares

Your agreement must specify what percentage each person owns, how shares were calculated (deposit contribution, income contribution, or both), and how shares will change if someone pays more toward the mortgage over time.

Ongoing Costs

You need to establish how you will split mortgage payments, who pays for rates, insurance, and body corporate fees, how you handle maintenance and repairs, and what happens if someone loses their job temporarily and cannot cover their share.

Decision Making

The agreement should clarify who decides on renovations, what requires unanimous agreement versus majority decision, and how you handle disagreements when they arise.

Living Arrangements

Consider whether owners can rent out their room if they move out, who decides on flatmates if one bedroom becomes available, and what house rules apply to all residents.

Exit Strategies

This is perhaps the most important section. Your agreement must address what happens if someone wants to sell their share, whether remaining owners get first right to buy, how the property is valued for buyout purposes, what happens if you cannot agree on selling, and what notice period applies for someone wanting out.

Death and Incapacity

You need to specify what happens if an owner dies, whether their share goes to their estate or other owners, and what happens if an owner becomes incapacitated.

Relationship Changes

Finally, consider what happens if an owner wants their partner to move in, if owners' circumstances change through marriage or children, and how you handle a romantic relationship developing between co-owners.

Real-World Scenarios to Plan For

These scenarios feel unlikely when you are excited about buying together, but over 5 to 10 years of ownership, life changes. Plan for them now.

Consider someone wanting out: three years in, one friend gets a job in another city and wants to sell their share. Do the others have to buy them out? Can they bring in a new co-owner? What if no one can afford the buyout?

Consider someone stopping payments: one owner loses their job and cannot cover their share of the mortgage for three months. Who covers the shortfall? Is it a loan to be repaid? Does it affect ownership shares?

Consider disagreement on selling: two owners want to sell while one does not. The property has increased in value, and the two who want to sell believe now is the right time. How is this resolved?

Consider major repairs: the roof needs replacing at $30,000. One owner has the cash while the others do not. Does the paying owner get increased equity? Is it structured as a loan?

Practical Steps Before Buying

Start by talking honestly about finances and sharing credit reports, income details, and savings. If this feels uncomfortable, that discomfort is a warning sign about buying together. Discuss your long-term plans and where each of you sees yourself in 5 to 10 years, since different trajectories create tension.

Each co-owner should get independent legal advice, which costs more but is essential to protect everyone's interests. Draft and sign the co-ownership agreement before making offers on properties, and do not rely on "we'll sort it out later". Update your wills to reflect your property ownership and ensure they do not conflict with your co-ownership agreement. Finally, discuss your plans with a bank or mortgage broker early to understand what you can actually borrow together before falling in love with properties.

The Costs of Co-Ownership

Budget for additional costs specific to co-ownership. A solicitor-drafted co-ownership agreement runs $1,500 to $3,000. Independent legal advice costs $500 to $1,000 per person. Updated wills cost $300 to $500 each. If a buyout occurs later, an additional valuation costs $600 to $1,000.

When Co-Ownership Works Well

Friend purchases succeed when all parties are financially stable and responsible, when everyone has similar timelines and is planning to own for similar periods, when there is genuine trust and open communication, when a comprehensive legal agreement is in place, when everyone has independent legal advice, and when exit strategies are clearly defined from the start.

When to Think Twice

Consider carefully if one person is contributing significantly more than others, if your life plans are very different, if there is already tension in the relationship, if someone is reluctant to discuss finances openly, or if you are rushing due to fear of missing out or market pressure.

Protecting the Friendship and the Investment

Buying with friends can be a smart path to homeownership, but only with proper planning. The excitement of entering the market should not override the need for clear legal agreements and honest conversations. Get legal advice, draft a comprehensive agreement, and plan for the worst while hoping for the best.

Do this right, and co-ownership can be a stepping stone to individual ownership down the track. Skip these steps, and a property purchase could cost you both money and friendships.