How Does Co-ownership Of A House Work? A Practical Guide

07 Oct How Does Co-ownership Of A House Work? A Practical Guide

House co-ownership, or property sharing, offers an alternative path to homeownership that is becoming more common in New Zealand. This option is attractive because it allows individuals to pool finances and share obligations, making it more feasible to secure a mortgage. But how does co-ownership of a house work? Continue reading to learn what this process looks like in New Zealand and whether it’s right for you.

Types of house co-ownership

New Zealand has two main arrangements for house co-ownership:

Joint tenancy: Each co-owner possesses equal rights to the property, and shares are not divided. This form of ownership is common among couples or trustees. Joint tenancies also include the legal mechanism to automatically distribute the shares of a co-owner who passes away to the remaining owners.

Tenancy in Common: Under this arrangement, property owners have defined shares in which each party may have a different percentage of interest. This type of arrangement is also commonly used among couples. The added flexibility of having separate shares enables friends or third parties to enter these together. In the event one of the owners passes away, their share does not transfer to the other co-owners and usually becomes absorbed by the estate instead.

Setting up and managing house co-ownership

How does co-ownership of a house work once you’ve decided the type of ownership arrangement? Successful co-ownership hinges on two crucial factors: the choice of co-owners and the establishment of clear agreements. These factors can significantly impact the mortgage, how the property is managed, and the eventual exit strategy (if applicable).

Who to enter co-ownership with

Deciding who to enter co-ownership with is an important first step that should be considered with both personal and financial factors. While gaining access to previously unaffordable areas of the market may be a top priority for many potential homeowners, the ability to communicate effectively and find common ground is crucial for resolving future issues. Ensuring an interpersonal match is also essential for creating a fair and equitable co-ownership agreement for all parties involved.

Co-ownership agreements

Although not legally required, creating a co-ownership agreement is often recommended. This agreement establishes financial responsibilities and creates contingencies for potential scenarios, both generic and specific to your co-ownership context. As a supplementary document that covers each stage of your home loan, it should provide clarity and reassurance if necessary. The scope of the agreement covers a broad range of matters, such as initial deposits, how maintenance will be carried out, and exit strategies. Also called a property-sharing agreement, the document should be reviewed with independent legal advice during the drafting process before it becomes legally binding.

Benefits and risks of house co-ownership

Benefits

• Stronger borrowing power: Co-ownership combines resources to expand your borrowing capacity. Although one’s borrowing power is also influenced by factors such as debt, increasing income enables potential buyers to access properties that may not be feasible financially on their own.
• Easier house maintenance: Homeownership responsibilities become more manageable with the help of extra people to share them with. Co-ownership allows tasks such as repairs or administrative duties to be divided and delegated to ease the pressure from one person.
• Accelerate timelines: One of the first steps to property ownership is deciding a timeframe for key milestones such as house hunting and finishing mortgage payments. Co-owning a house with parents or friends can enable you to join the property ladder sooner by pooling resources.

Risks

• Interdependent finances: Joining finances with other people creates a shared network of risk. Individuals may face financial burdens if other co-owners default on mortgage payments or experience income hardships.
• Exit considerations: Potential scenarios that end or change the co-ownership agreement, such as a party wishing to leave, can be challenging to navigate when each individual has their own opinion and personal circumstances.
• Interpersonal challenges: Co-ownership introduces both a new social and financial dynamic. Handling conflicting perspectives with sensitivity and care is essential to meet the co-ownership agreement’s terms and maintain a harmonious living arrangement.

Finding the best co-ownership deals with Mortgage Advisers

Entering house co-ownership with a partner or friends introduces extra matters to consider on your home-owning journey. Mortgage obligations are likely an important component of any agreement you may enter to finance your property. A Mortgage Adviser can help you find and secure a home loan deal best aligned with your finances and lifestyle priorities.

Every co-ownership arrangement is unique, and one of our advisers at Max Mortgages can help you navigate the market. To learn more about how co-ownership works and how it could suit your circumstances, get in touch with one of our Mortgage Advisers.

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