The Process of Buying Your Partner Out of a Joint Mortgage
We recently wrote about what borrowers need to know about removing a name from a joint mortgage. In it, we covered the possible reasons you may need to make those changes, the legal process, and the practical steps required to complete the procedure.
Today, we’re going to take a closer look into buying out a partner of a joint mortgage. In some cases, where a buyout was expected from the outset, for example, where family or friends have helped a buyer with a deposit or as an investor, there will often be a predetermined agreement in place, which keeps the process as simple as possible.
In other situations, where a separation is unexpected, how to buy someone out of a house can be more complicated. The divorce procedure can, in many cases, actually help splitting partners decide who gets what and the split of equity in the property. This is called the financial settlement, and if the decision is made through the court, you can apply for a financial order known as Form E. However, it’s not always so straightforward, with high emotions in play in what can be an incredibly delicate situation.
An equity split isn’t always 50:50 or down to who paid the mortgage
Deciding who deserves what isn’t always down to who paid the most into the mortgage or the majority of the repayments. Being married entitles both parties to a share of the property, whoever paid the mortgage.
When a couple decides that one partner forfeits a career to bring up their family, they’re still contributing to their home, despite not being financially able to provide their half of 50:50 mortgage repayments.
If your name isn’t on the mortgage, you’ve got no legal right to a share of the equity
If you aren’t married and you’ve contributed to the mortgage every month, you have no legal right to call it your home if you're not on the paperwork. If you feel you’re owed a significant share, you’ll have to consult a solicitor to discuss your case and the likelihood of being awarded the share you think you deserve.
As we said, it’s complicated, personal, and incredibly sensitive.
Private negotiations without a mediator require each party to keep a level and fair head if things are going to develop smoothly. How long a buyout can take depends on how calm and reasonable the dissolving partners are and the deal on the table. Failure to reach a decision quickly and objectively stretches matters out, prolonging financial and relational decisions for longer than necessary.
Important points to note when buying out a partner
Whatever happens, who’s leaving, who’s staying, and who’s taking control of the mortgage long-term, in the short term, the existing monthly mortgage payments must be paid as usual.
Refusing to pay, missing, or defaulting on mortgage payments doesn’t just put both parties in danger of losing the property but will be recorded on both of their credit reports, affecting their credit scores and their ability to get credit in future.
Not only is this detrimental to separating with your fair share of the equity, but the damage to your credit score could be the thing that stops you from getting the mortgage you need to keep your home.
A note on divorce and property buyouts
Divorce is a sensitive situation, so we will say that both parties must focus on the end solution. Leaving the mediation to professionals is the most sensible alternative if they feel they can’t discuss this together without emotions and tempers taking over.
Put all your efforts into getting to the finish line, and you’ll be able to put this demanding and challenging time behind you and start enjoying the next step as the sole homeowner.
Calculating the equity in your home
To decide who gets precisely how much, you first need to know the value your property has accrued since you took out your mortgage.
That means finding the property's current value and how much of that has been catered for so far.
- Determine the property's value – you can ask the lender to carry this out, which they will do for a fee, or organise an independent property valuation.
- Ask for a redemption certificate – your lender will supply a document that details how much of the mortgage is left to pay and the early repayment charges included that will add to the total costs.
- Establish any or all other costs included in the buyout process. If there are legal fees, reasonable costs, or anything else you decide is necessary to complete the procedure, they must also be taken into consideration.
- Retaining proof of the percentage share of the initial deposit should also be included unless the financial settlement arrangement says otherwise.
- Subtract the costs and the outstanding mortgage from the property value to determine the equity.
- Finally, divide the equity by the number of property owners leaving the mortgage.
As you can imagine, this is a simplified list, and the effort required to put it together can be tricky. However, with professional assistance and a helpful lender, you should be able to calculate the final figures in a relatively short space of time.
Calculating the total buyout amount
You won’t just need to cover the cost of the equity being released to your ex-partner but also all the additional costs of taking out a new mortgage or remortgaging the property to become the sole owner.
You must consider all expenses as part of the transaction, as any shortfall could halt the process or leave you without the money to make your monthly repayments.
Cash buyouts
Do I need cash to buy my partner out of a mortgage? The situation becomes far more straightforward if you’re fortunate enough to have the cash to buy out your partner. If you’ve got a suitable income to take over the mortgage repayments alone, you only need to pass your lender’s affordability assessment and credit requirements. Then, you can have a solicitor file the paperwork to remove your partner’s name from the existing paperwork.
Transfer of equity legal fees can range from £100 to £500, with the deed of transfer fee to the Land Registry around £50.
What can I do if I can’t afford to buy my partner out?
Sadly, not everyone is in such a fortunate position. Raising funds to buy out a partner often means borrowing money to repay the equity share or remortgaging to make the new monthly payments manageable for the updated amount.
Borrowing money
Depending on how much money you need, you could have little left to pay on a long-standing mortgage, so a personal loan, credit card, or help from a family member might be the simplest and most cost-effective way.
For more significant amounts, it’s almost always a case of remortgaging.
Finding a new mortgage and remortgaging
If you’re tied into a mortgage, you can ask your lender if they’re willing to increase the amount of your loan and perhaps extend the term, or, as an advance to avoid missing payments if you’re locked into a fixed interest-rate term, for a top-up mortgage until you can put another fixed-rate deal in place.
You may be able to take out an additional mortgage to the existing one to repay the difference. Alternatively, many homeowners take out a second mortgage to cater for the shortfall, often achieving more preferable rates.
As with any mortgage, you’ll have to meet the lender's affordability assessment and credit requirements. Hopefully, they’ll be as helpful as possible, as they’ll want you to continue making your payments.
Consider a guarantor
If you can’t meet your lender's requirements or borrow the money to manage them, you can ask a family member to act as a guarantor on your mortgage, assuring the bank that there’s someone to step in and make the payments when you might struggle. In addition, family members could choose to release equity from their homes to help you buy yours.
Talk to your mortgage broker about springboard mortgages and family guarantor mortgages. However, these options are very limited.
Can you apply for an income boost?
Income boosts (and deposit boosts) allow you to add a friend or family member to your mortgage, increasing how much you can borrow, but not the property deeds.
Obtain a second charge
If these options aren’t available, you may be eligible for a second charge mortgage. This secondary secured loan is available from specialist lenders—another option to ask your mortgage broker about.
Private equity loan
A private equity loan allows an investor to provide the capital you need for a share in the property.
Conclusion
Separation and divorce are sensitive and stressful, even when you’re on reasonable or good terms with an ex-partner. However, understanding how to buy out a joint owner and handling the financial side needn’t be as complicated and impossible as it may first seem. Speaking to an experienced mortgage broker will help you understand your options, the figures you’re likely to face, and the practicalities of getting your buyout in place.
