Unless you’re the sole owner of your home, you might find yourself facing the prospect of buying someone out of your property.
Divorce is a common trigger of mortgage buyouts. More than 103,000 divorces were granted in 2020, according to the Office for National Statistics. When a marriage or relationship breaks down one person usually keeps the house. To give them their share of the equity in the property and remove them from the mortgage you’ll need to buy them out.
Friends or family who have bought together and decide to part ways some years down the line will go through the same buyout process.
Before we explain how to buy someone out of a house, first a note of caution. Everyone who is named on the mortgage is jointly and separately liable for the payments.
The formal term is jointly and severally, which means the same thing. If one person doesn’t pay their share, you’re both liable for the whole payment and will be chased by the lender and the credit score of all parties will be affected. That’s why it’s important to stay organised and make sure everyone knows their responsibilities.
Working out the equity share
If you’re joint owners and there’s no specific divorce settlement that dictates how equity is split, chances are it will be 50/50.
Being registered as joint owners means you both wholly own the property. If you’re registered as tenants in common, you each own a separate specified share. Up to four people can be registered as owners this way. For example, two owners could have a 40% share each and the remaining two could have a 10% share each.
To work out the equity, first get the property valued by a surveyor. An estate agent’s valuation is not accurate and could over inflate the property’s worth.
Next, subtract the mortgage balance from the value to get your equity. Then divide this by the number of property owners to get their share – unless there is a specific agreement that lays out how the equity should be split.
Take a couple, for example, who have a property valued at £300,000 and a mortgage of £175,000. That gives them £125,000 of equity which means the owner being bought out is entitled to £62,500.
How to buy someone out of a house
To buy someone out of a house, you take over their share of the mortgage and the property in exchange for the equity you’ve agreed.
The legal process is called a transfer of equity. Once the transfer of equity is complete their name is removed from the title deeds to the property.
But first the mortgage lender must agree.
If you’re staying with the same lender, you’ll need a letter of consent from them saying that they agree to the buyout.
The lender will run a credit check on you and calculate if your sole salary is enough to support the mortgage payments.
Once you’ve proved you can afford the mortgage by yourself, they’ll agree to the transfer of equity.
If you’re not changing any other terms of your mortgage, for example the balance or term, you’re unlikely to pay an early repayment charge to carry out a transfer of equity mid-way through your mortgage deal.
You can also choose to remortgage away from your old lender to a new one as a single borrower.
If the new lender is satisfied you can afford the mortgage by yourself, you’ll receive a mortgage offer which lays out the details of your new loan.
When your remortgage completes, your new lender will transfer enough money to your previous lender to repay your old mortgage. This releases your former partner from the debt. The solicitor can then take them off the property title deeds.
If the equity split is amicable, the whole process can take between four and six weeks.
Raising cash to buy them out
Unless you have thousands of pounds in savings lying around, you’ll have to borrow the money to buy out your ex.
There’s a few ways to go about this. You can apply for a higher mortgage with your existing lender if your mortgage deal has expired. If you’re tied into a mortgage deal ask your lender for a further advance. This is a top up mortgage allowing you to avoid early repayment charges.
For both these options, you must prove you can afford the higher loan amount by yourself. If you are unable to afford this higher loan amount by yourself, you could consider an Income Boost. This is a way to increase the amount you could borrow, by adding a family member or friend’s income onto the mortgage application (and they won’t be on the deeds to the property).
If you are turned down, you may be eligible for a second charge mortgage, also known as a secured loan. These are specialist loans so ask a mortgage broker for help.
Alternatively, a family member may want to gift you the money. They can use their own savings or release equity from their own home using later life mortgage options. A Deposit Boost is a way for a family member to release equity from their property using a remortgage. This can then be gifted to the person trying to buy their partner out of the property.
What fees will I pay?
You’ll need to pay legal fees of between £250 to £500 for the transfer of equity. You must pay a fee to the Land Registry to process the deed of transfer which starts from around £50. A valuation, mortgage broker and lender fee may also be payable.
Taking over mortgage after divorce
Taking over sole responsibility for the mortgage after a divorce can be daunting. It’s no wonder so many homeowners use the internet search phrase ‘mortgage after divorce uk’ looking for help.
If you’re not able to pass a lender’s affordability assessment on your own you could ask a family member to be a guarantor. Modern guarantor mortgages are known as a joint borrower sole proprietor (JBSP) arrangement. At Tembo, we call this an Income Boost. Family members join you on the mortgage using their income to boost your borrowing power. They won’t be registered on the property title deeds so the house will be transferred solely to you.
To find the most suitable mortgage solution for your needs, it’s best to enlist the help of a mortgage professional. You can create a plan here to get started on your application.
Words by Sam Partington