If your house and mortgage is shared with someone else, such as a spouse, long-term partner or friend, then at some point in the future you may need to buy them out.
The reasons will be varied but it might be due to divorce, relationship break-up, or just that one person has decided to move out.
It’s never easy when a relationship breaks down. In fact, it can be one of the most difficult times in someone’s life. If you and your partner own a house together, things can become even more complicated.
One of the most common questions people ask during this time is, “How do I buy my partner out of the house?”
The first thing you need to do is talk to your partner about the situation. It’s important that both of you are on the same page and have the same goals in mind. You also need to make sure that both of you are aware of your financial obligations, such as mortgage payments and other bills.
This guide will provide you with all the information you need to know about buying someone out of a house.
What does it mean to buy someone out?
Splitting from a long-term partner is emotionally difficult enough, but there’s all of the financial stuff to sort out as well. If you are both still on amicable terms then this makes the whole process a lot easier.
For the majority of people, owning a property also means having a joint mortgage. From a legal point of view, both the property and the mortgage are closely linked together.
PROPERTY
The owners of a property are formally entered on to the title deeds, or records, held by Land Registry. This information is provided by your solicitor during the home buying process.
MORTGAGE
A mortgage is a loan which is secured against a property. This means that the property cannot be sold or remortgaged without the lender’s permission. The lender will create a charge which is shown on the Land Registry records, stating that they have an interest in the property, because of the mortgage.
When you buy your partner out, their name will be removed from the Land Registry as an owner, and from the mortgage as a borrower.
Things to know
Removing someone from a mortgage is a legal process that can take some time. It’s a fairly simple procedure but requires the agreement and cooperation of both parties.
This article looks at How long does a transfer of equity take?
While all of this is going on the monthly mortgage repayments must be kept upto date. Even if one person has now moved out, everyone who is named on the mortgage has a responsibility for the payments.
Failing to maintain the payments will eventually lead to repossession, which will adversely affect the credit files of everyone involved, making it much harder to apply for a mortgage in the future.
What is a mortgage buyout?
As we know, a mortgage buyout involves removing someone from both the title deeds of the house and the mortgage.
If the property is currently owned 50/50 and you buyout your partner, the joint mortgage will be transferred to one persons name, you. You then become the sole owner with 100%.
Your partners 50% ownership will have a value and that needs to be paid over to them as part of this process. In nearly all mortgage buyouts this payment will be made as a lump sum.
The official term for buying someone out is ‘transfer of equity‘.
How do you calculate what is owed?
In most cases buying an ex-partner out of a house involves paying them half of the equity. Equity is the amount of the property which is owned outright.
This isn’t always the case, particularly if you paid in a larger deposit, or contributed a larger amount towards the monthly repayments.
This situation is not normally considered when first buying a home together, but by having either a written agreement, or proof of the payments, you will be able to legitimately claim a higher percentage of equity.
Here is the basic process of valuing someone’s equity share, presuming that everything is equal.
- You will need to get the property valued. This can be done by asking a couple of local estate agents round and then taking an average figure. Or you could pay for a professional valuation.
- Ask your mortgage lender for a redemption statement. This will be the exact amount you owe them, including any early repayment charges and closure fees.
- Take the mortgage redemption figure away from the property value to calculate the equity.
- Divide the equity by the number of owners.
The answer will be what the person’s ownership in the property is worth today.
Remember that this figure will change according to movements in property values and also the reducing balance for a repayment mortgage.
It’s common for there to be some differences of opinion when calculating these values.
The best outcome is to be able to work out what is owed by mutual agreement. If this is unsuccessful then you will both need to take legal advice which could then be costly.
If you are married and going through a divorce, you will need to wait for the final settlement before knowing how much your share is worth.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
Can I remortgage my house to buyout my partner?
The steps involved in buying someone out of a house will include removing their name from the mortgage as part of the transfer of equity.
Unless you are in a position to pay your partner in cash, remortgaging to a new lender and borrowing the extra money is the option most people choose. You will need to make a full mortgage application to the new lender, and they will need to make sure that the larger mortgage is affordable to you.
Originally, the mortgage would have been assessed on two incomes and now you will be paying the mortgage on your own. You can only borrow up to the maximum permitted by the lender, based on your income, with the loan to value percentage also providing an upper cap. Depending on your own financial situation there’s a chance that the application could be rejected, or that the loan offered is less than you agreed.
Making multiple mortgage applications to different lenders will affect your credit score. It’s a good idea to ask your mortgage broker for some advice on the possible options.
A Complete Guide to Remortgaging
Proving your income
The lender will want to see full details on your income and expenditure, to assess whether the new mortgage is affordable.
For employed borrowers this would normally be six months payslips plus the last P60.
The requirements if you are self-employed will be a bit more involved. You will need to submit finalised accounts, SA302’s and bank statements. Most lenders will offer self employed mortgages if you have 2 years of accounts signed off.
How much can I borrow?
Our mortgage calculator will give you an idea of how much you could borrow for a residential re-mortgage.
It takes just a few seconds to input your earnings and then see what is possible.
Our calculator will give you a good idea of what’s possible but for a more accurate opinion we recommend speaking with a whole of market mortgage broker.
They can identify the right lender for you, particularly if you have self-employed income, or perhaps some poor credit.
Getting the right advice
Completing a mortgage buyout is going to be stressful, more so if you are also going through a divorce or separation.
By seeking the advice and support of specialists you can make the process a little easier for you.
The legal advice you need will be influenced by how amicable the financial side of the separation is. If everything is agreeable and communications are good then it may only need a conveyancing solicitor to make the name changes.
However, if there are disagreements over finances then you may have to hire a solicitor to advise you.
From the mortgage side, you will always benefit from working with an experienced mortgage broker, mainly because they will be able to select the best mortgage for you from the thousands available.
You will also find that they will be familiar with remortgages, including transfer of equity remortgages, and can provide expert support and guidance to help you.
