When you own a property with someone else, things can sometimes get complicated.
One of the most common mortgage related issues is where one of the owners wants to leave the property, and have themselves removed from the mortgage.
This situation happens quite frequently but the good news is that it is possible for a joint mortgage to be transferred to one person.
The process is called a transfer of equity. This article looks at the reasons why a joint mortgage might need to be changed, and what should be considered before getting the ball rolling.
What is a joint mortgage?
Most people would recognise that a joint mortgage is where two people take out a mortgage so that they can buy a property together.
And this would be the most common setup for a joint mortgage.
But a joint mortgage can have more than two people involved.
In fact there are many lenders that are happy for three, or even four, people to be part of the same mortgage.
In the UK, it’s common for couples, friends, or family members to apply for a mortgage together. This could be to finance a home to live in, or maybe a buy to let investment property.
It may be that you have a joint mortgage with your parents.
Everyone who is listed on the mortgage is equally responsible for making sure the monthly repayments are made on time.
You will find more useful information in our article: How do joint mortgages work?
What happens if one person stops paying?
All of the other borrowers are responsible for making the full payments by the due date. They are all jointly liable for the debt.
Should the mortgage account fall into arrears, because the full payments have not been made, this will affect all of the borrowers in the same way.
This will be noted on your credit report and is likely to cause problems in the future, if you were to apply for a loan or credit card.
What happens if the payments are stopped?
A mortgage lender is in business to lend money and charge the borrower (you) interest for this privilege. For this reason they want their customers to make their regular payments.
However, if the mortgage falls in to arrears and then goes into default the lender is left will little option but to claim the property back, and then sell it.
This is known as repossession. In addition, the lender can pursue any of the parties listed on the mortgage for the money owed.
Reasons for changing a mortgage
There are many reasons why a joint mortgage might need to be transferred to one person.
More often than not the reason is due to a relationship breakdown.
Divorce or separation – When a relationship ends one partner may wish to leave the property. The remaining person can ‘buy them out’ by taking over the mortgage, in their sole name and continue to live in the property.
Property investing – Two investors could have purchased a buy to let with a mortgage. When one investor wants to ‘cash in’ their investment, it may be possible for the remaining person to buy them out, with a new mortgage.
Buying with friends – It’s difficult to get on the property ladder yourself, so buying a home with a friend or family member can be a good solution. But this was never going to be a long term situation. So when the time is right one person can leave, while the other takes over the mortgage responsibility.
You will find more useful information in our Guide to Divorce and Mortgages.
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.
How do you buy someone out?
When you buy someone out of a joint mortgage you remove them from the mortgage and the property. So they are no longer an owner.
It is normal for the remaining person to pay for the share they will be acquiring. Although it is not compulsory to do so.
The process of transferring ownership in this way is known as a transfer of equity.
How long does a transfer of equity take? – Around 4-6 weeks.
When you change the owners of a property, you also need to update who is on the mortgage.
The first thing to do is establish the equity in your property, this is the part that is owned outright. Deduct the mortgage balance from the value of your home to find out the equity.
For most people the property will be owned 50/50 with the other person, although uneven shares are possible.
Divide the equity in half and this is the amount of money you will need to give the person leaving. This can be paid from your savings or it may be possible to apply for a higher mortgage and borrow it.
Anyone currently named on the mortgage must agree to the changes.
Buying someone out is when one property owner pays the other for their share of the equity.
For example, if your house is worth £500,000 and you owe £200,000 on your mortgage, you would have £300,000 of equity.
With equal 50/50 ownership this amounts to £150,000 each.
One person would need to pay this amount to the other to buy them out.
Transfer of equity and mortgages
When a transfer of equity is needed, any associated mortgages will need to be updated, to reflect the new ownership.
This is normally done via a transfer of equity remortgage, which will move the mortgage to a new lender. Your marital status won’t affect your ability to transfer a mortgage over to one person. Whether you’re married, divorced or cohabiting, lenders treat you the same, anyone named on a mortgage is responsible for paying it off.
Any new lender will need to reassess the borrowing situation and check that it is still affordable for the person staying. This is effectively a brand new mortgage application, with the usual credit and affordability checks.
The ‘transfer of equity’ component is a legal change that requires a solicitor or conveyancer. They will submit the amendments to Land Registry.
Here’s the basics of a transfer of equity remortgage:
- The remaining owner will need to apply for a mortgage with a new lender
- The lender will conduct the usual affordability and credit checks
- Once the remortgage has been approved, it can be used to pay off the existing loan
- Any extra money to fund the buyout will be sent to the person leaving
- The solicitor will update the title deeds to reflect the change in ownership
Switching lenders with a remortgage will come with a set of costs. There will be legal fees, valuation and mortgage fees, and possibly early repayment charges for the outgoing mortgage.
When adjusting the mortgage from joint to single, you don’t have to change lender, although many people do choose this route. It may be possible to stay with your current lender, subject to their checks, and this could be more cost effective.
At least one owner must remain at the property
A transfer of equity is different to when you sell a property.
A requirement is that at least one of the current owners needs to remain in place, as an owner and mortgage borrower.
So if Mr & Mrs Smith currently own a home together. For the joint mortgage to be transferred to one person, that person should either be Mr Smith or Mrs Smith.
Getting a new mortgage
For a lender, a transfer of title is a very common situation.
But for you this could be a new experience, as you will be applying for a new mortgage by yourself.
To raise the money needed to buy someone out you may also need to increase the mortgage at this point.
The lender will conduct an affordability and credit check and assess your income. Because the mortgage is moving from two incomes down to one, the lender must be certain that it is affordable for you.
There’s always a possibility that the mortgage application is declined, even when you are not borrowing any extra.
This could be because of some bad credit, but commonly the reason is simply affordability.
To give yourself the best chance work with a whole of market mortgage broker. They can find the best lender and make some enquiries regarding the affordability checks, before you start paying any lender fees.
How to buy someone out of a house
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.
This guide will provide you with all the information you need to know about buying someone out of a house.
Transfer of equity mortgages explained
If you need to partly change who owns a property then this is called transfer of equity. It could involve adding someone, removing someone or both!
This guide aims to provide a broad overview of what a transfer of equity is, how it works and the overall process.
Should I get a Decision in Principle?
Before applying for a new mortgage many people choose to get a decision in principle, or DIP, from a lender.
This is something that your mortgage adviser can organise and it gives an indication about whether a specific lender will give you a mortgage.
What if a new mortgage isn’t possible?
If you can’t qualify for a mortgage by yourself, there are three options:
- Sell the property and divide the proceeds
- Remain as joint owners (and possibly let the property)
- Bring someone new into the mortgage
Do I need to change lender?
Not necessarily.
It will depend on whether your current lender can provide what you need: joint mortgage to single and possibly borrow some more.
If not, then remortgaging to a more amenable lender might be needed.
Do you have to give the other person money?
No.
The amount of money paid over, if any, will be decided by mutual agreement or a divorce settlement.
In cases of negative equity, or where a parent was the co-owner, payments are rarely required.
Can I transfer a mortgage if I’m self-employed?
Being self-employed, or having some bad credit, would not necessarily prevent you from getting a mortgage, but it might make the process a bit trickier.
All borrowers, regardless of employment status, need to prove to the lender that they have sufficient regular income to maintain the monthly mortgage payments.
Ready to explore your options?
If you’re just about to start a new mortgage journey and could use the guiding hand of a professional, don’t hesitate to reach out to a reputable mortgage broker.
An independent mortgage broker can access over 100 lenders on your behalf. They will make the process smoother and more profitable than going it alone.
Keep reading, keep asking questions. The more you know, the better decisions you can make.
