A New Zealand bank has been ordered to pay approximately $6,700 USD – the equivalent of $10,000 NZD as of February 13, 2026 – to a woman after it improperly blocked her from repaying her son’s mortgage, according to a case note published by the Banking Ombudsman scheme.
The dispute stemmed from a 2008 property purchase involving the woman, her son, and her daughter-in-law, who formed a partnership to secure a $320,000 loan. When the son and daughter-in-law subsequently separated, the bank froze the loan accounts and refused to process any instructions until the couple resolved their differences, despite the mother offering to repay the entire outstanding balance.
The Banking Ombudsman found the bank’s actions were inconsistent with the terms of the loan agreement, which stipulated that each borrower retained the independent right to repay the loan at any time. The mother held a 77 percent stake in the partnership, granting her the authority to make resolutions without the consent of the other two parties. “We pointed out the dispute among the three borrowers had no effect on the right of each borrower to repay the loan at any time,” the Ombudsman’s case note stated.
The case highlights the potential complications of co-ownership and the importance of clear agreements when purchasing property with friends or family, according to Banking Ombudsman Nicola Sladden. “When relationships end, joint accounts, loans and partnerships can become tricky. It’s crucial to understand how your accounts are set up, and what your rights and obligations are,” Sladden said. She advised prospective co-owners to determine in advance how assets would be divided in the event of separation and to seek legal counsel for formal arrangements.
Mortgage adviser Jeremy Andrews of Key Mortgages noted that purchasing property in partnership is a common strategy to combine deposits and incomes, potentially securing better interest rates and larger loan approvals. However, he emphasized the critical require to address potential exit strategies. “There needs to be a clear understanding of the future implications at that point, before entering into such [an] agreement, and we always recommend each party seeks independent legal advice on this,” Andrews said.
Andrews explained that co-borrowers are often jointly and severally liable for the loan, which could present a significant obstacle if one party wishes to sell their share of the property. He also pointed to the option of owning property as tenants in common, which allows for a specified percentage of ownership and a corresponding share of any future increase in value. However, he cautioned that buying out a departing co-owner’s share, including both the mortgage balance and accumulated equity, can be challenging.
The Banking Ombudsman Scheme is required to undergo independent reviews under the Financial Service Providers (Registration and Dispute Resolution) Act 2008, with reports submitted to the Minister of Commerce and Consumer Affairs. The scheme’s rules were updated, with amendments taking effect on July 1, 2025.
