How do you get 8 people on a mortgage when you’re co-buying a home?

I co-bought a home recently, with a group of eight people. I shared our story about the whole experience, in the hope that more people could see that home co-ownership is actually quite achievable. Not just achievable, but quite topical in the face of housing crises, social isolation, widening inequality in property ownership — huge issues facing all of us.

If you are thinking that home co-ownership is interesting, or that it might be for you, then you might be hunting for more specifics on the legal and financial side. That’s what this article is for — to give you some ideas about the specifics, and what to expect along the journey. It’s a compilation of the legal and financial questions we had, and the answers we found. Things like “what financial help is available?” and “who can give us a home loan?”.

So here’s the lowdown on buying a home with a big group in New Zealand, according to our experience. While we can’t guarantee the experience will be the exactly the same for everyone, it’s likely you’ll be facing something similar!

Legal ownership structure

You’ll need legal advice for choosing the ownership structure you want. I wouldn’t recommend doing this without qualified legal help. Our group had a few options:

• Create a seperate entity (like a trust or company) that owns the house, and each person has an ownership share in that entity. We didn’t choose this option we couldn’t have used our first home withdrawals from KiwiSaver.
• “Tenants in common” with each individual owning an equal share of the property. For example, 8 owners, 12.5% share each. We didn’t choose this because our bank preferred the following option:
• “Tenants in common” with each couple owning their share jointly. In our case, 8 owners, 4 couples, each couple owns 25% jointly.

We chose to own equal shares. As well as being the best fit for our values, it also made us slightly more attractive for banks to lend money to.

Relieve the financial pinch

If you are buying your first home together, this might be the biggest financial decision of your lives so far. It’s a lot of money. Thankfully, some help is available!

Your home loan lender/bank might offer a cash contribution. Our bank gave us a few thousand dollars as a cash contribution, because we were buying our first home.

You can get your first home withdrawal from your KiwiSaver (your personal pension fund). As long as you are otherwise eligible, and you are buying your first home. Woohoo!

Sorry, you probably can’t get the first home grant. In NZ, there’s a fantastic initiative that makes life easier for first home buyers. It normally gives you a free $5–10k cash boost to your deposit. Unfortunately, the current rules do not advantage people buying houses in groups. Your entire group has to be earning a combined income under $130k per year for starters — and when you have lots of people, your incomes add up quickly. Also, grants will only be given for properties under a certain value, meaning qualifying properties tend to be small. If you’re buying a big house, it’s unlikely that you will qualify.
But who knows, maybe your group meets the income and house price rules, take a look at Kāinga Ora to check!

Relieving the financial pinch is important, because…

You might need a deposit amount over the standard 20%. Usually people buying their first homes must pay at least 20% as a deposit on their new home, and then get the remaining 80% as a loan. Our bank required about 30% deposit from us, because as a big group, we were a bit more risky and they wanted to minimise their risk.

Getting a home loan

We couldn’t find a mortgage broker who had specific expertise in working with big groups, so we chose to talk to the banks ourselves. Here’s what we found out:

You need to get a joint home loan with the same bank. The bank wants to have sole control over your home, so they can sell it and get all their money back if you can’t pay back your home loan. No first-tier lender will agree to share.

Not all banks are set up to give home loans to large groups. Our first choice was Co-operative Bank, who only gives home loans to singles and couples currently. Our second choice was Kiwibank, but their IT system could only handle a maximum of 6 home buyers on a loan, so they couldn’t help. In the end we went with ANZ, because out of the remaining banks available, they were the first ones who said yes.

We could have set up a company or trust, and applied for a loan through that entity, instead of having 8 people lining up for one home loan. But that would have meant forgoing our KiwiSaver first home withdrawal, as you’ll see later.

The names on your home loan have to be the same names who own the property. In our case, one of our group was buying their share with cash (from a family loan). But they still had to sign our home loan contract with the bank, in order for the bank to be happy.

To finalise your home loan, you’ll need a co-ownership / property sharing agreement. Your bank will probably need to see a signed agreement from your group which outlines how much money each person will be contributing, and what the legal ownership structure is. This happened for us right at the end of our loan process with the bank, right before settlement date, so we didn’t have to worry about it early on.

Choosing your loan structure

You can all be responsible for different “parts” of the same home loan. Our bank let us split our loan into 4 equal “parts”, which each couple could be responsible for. This is great because it allows people to pay off their separate parts of the loan however they want to. Some might have higher incomes and want to pay their part off more quickly, whereas others might choose a longer term.

You are all jointly liable for the ENTIRE loan. Even though each person is only responsible for making repayments on their part of the loan, if one person can’t make their payments, then everyone is liable. So if you find yourself in the unfortunate situation of some group members being unable to make their share of the repayments, you’ll need a strategy to cover that as a group. Otherwise the bank could choose to sell your house.

It’s simpler to pay an equal deposit amount. Even if someone has more savings than someone else, it makes more sense to pay an equal amount of deposit to kick off the loan. As soon as the loan is active, you can then put any remaining savings in immediately.

You can still choose combinations of fixed and floating interest rates. We split our loan into 4 parts, and then further split those parts into fixed and floating interest. So each couple got to independently decide what mix of certainty and flexibility they wanted.

Revolving credit is annoying but possible. None of us chose to include revolving credit into our loan structure in the end. Mostly because it had an extra approval step, plus needing extra guarantees from the whole group, and we didn’t have the time (or will) to organise it all. Plus, revolving credit can be dangerous — it’s basically treating your loan like a credit card!

You can do this!

Financial help, legal structures, home loans, mortgage admin… This might feel like a lot of information to take in, especially if you are at an early point in your co-housing journey. If you do feel that way, don’t worry. It’s not as hard as it looks! And it will definitely be worth it once you’ve moved in to your ideal house :)

Thanks to my friends who bought this house with me, making this whole experience possible:

Jody Burrell, Charlotte Shade, Rosie Sievers, Jesse Kearse, Mike Robinson, Thom Mellor, and Gráinne Patterson

And a big thanks to Clare Stanley, our solicitor who helped us through the whole process.

Written by Rupert Snook