How Can I Buy Out My Partner from a Joint Mortgage?

Life has a nasty habit of throwing curveballs at us when we least expect it.

Although many people enter into a joint mortgage fully expecting to remain with that person, it is common for relationships to break down long before a mortgage term is up.

The good news is that if you’re in this situation, you don’t necessarily need to sell the house and there are some options available to you including buying out your partner and remaining in your home.

What does that mean though? How do mortgage buyouts work and is it the right option for you? 

What Happens to a Mortgage if You Split From Your Partner?

In the UK it is estimated that 42% of marriages will end in divorce. Of that 42% divorce rate, the average length of a marriage is 11 years.

When you consider that the standard mortgage term in the UK is 25 years it is easy to see that many couples getting divorced are still indebted to a mortgage lender. 

Non-Married Couples

There is also a growing trend among the younger population to buy property without being married and in these cases the statistics paint an even bleaker picture. The average length of a relationship in the UK outside of wedlock is less than married couples.

This is problematic as many unwed couples move in together at around the 17 month mark. This includes both renters and buyers.

What’s more, unmarried couples are more likely to remain engaged for longer periods of time, forgoing wedding expenses and using savings on house deposits instead. The average engagement in the UK has been extended by 20 months, meaning couples are waiting almost 2 years longer to tie the knot.

Splitting Up and Divorce with a Mortgage

Non-married couples have the advantage of a much easier break-up process and can avoid having to go to court to separate their affairs.

If you split from your partner and you’re unmarried you will likely need to have a discussion about what both of you want to do going forward with any joint or shared assets.

Divorce on the other hand is quite a complex legal web to try and navigate through. 

In the event that you’re getting divorced in the UK you will likely need to consult a solicitor to establish what entitlements each person in the marriage has after the divorce.

A common bone of contention in divorces is who gets the house and quite often judges will make rulings that leave one party needing to either buyout the other or sell the property to ensure that the divorce settlement is completed.

What About My Mortgage?

A harsh reality of a breakup or divorce is that although you might consider yourself separated from your partner, a mortgage lender won’t.

They have no interest in your personal status at this time and you must remember that regardless of your commitment to your partner, you made a commitment to the mortgage lender to pay that loan under the terms agreed when you took the mortgage.

You might think that because you have moved out or no longer use the property that you shouldn’t make your mortgage payments this is incorrect.

Your lender will hold both you and your partner jointly and severally liable for the mortgage and you must keep up your mortgage obligations even if you have left the property.

For example, if you break up with your partner and leave the property and the mortgage payments get missed, a lender has every right to come after both of you for the money or they can even pursue you alone.

A lender will want to get their money and if they feel as though it will be easier to obtain the money from you alone, they won’t hesitate in enforcing the debt against you.

Because this can lead to resentment and financial difficulties between partners, a common solution is for one of you to buy the other out.

What Happens in a Buyout?

A buyout is a way of giving both parties on a mortgage a clean break. It will close off the mortgage for the person being bought out and they relinquish their right to ownership of the property in return for a payment.

In nearly all cases this payment will be a lump sum and will encompass the amount of equity the person being bought out has as well as satisfying any declaration of trust in place (more on this shortly).

Buyouts can be done in a number of ways but in almost all circumstances you will need to remortgage the property removing the other party from the mortgage in the process.

How Do You Calculate the Cost of Buying Someone Out of a Mortgage?

Before you look at how to go about buying out your partner, you must check your title deeds and see how the ownership of the property is arranged. It will either be under a joint tenancy or tenants in common.

Joint tenancy mortgages are a little simpler to buyout from as the property will be split equally (50/50) between you and your partner. 

Tenants in Common Mortgages

These can be much trickier, not least because a tenants in common mortgage can have more than 2 people listed as property owners. If you’re looking to buyout someone from a tenants in common mortgage you will need to look at the deeds and see how much of the property they’re entitled to.

Declaration of Trust You may also find that with a tenants in common mortgage you have a declaration of trust or in Scotland a deed of declaration. This can really complicate things as the person might be owed more money especially if they have put in a greater deposit at the beginning.

Sometimes, individuals have responsibilities in these declarations that will need to be handed over and new legal documents will need to be drawn up too. This means you may well find you have additional solicitors costs (above the basic mortgage broker fees) involved when buying someone out.

Working Out How Much to Pay Your Partner

If you’re married, your divorce settlement will outline what your partner is entitled to. If you and your partner are able to come to an agreement before the divorce goes through then it is okay to buyout the property beforehand.

If buying out before the divorce is finalised you should make sure that your partner is in agreement with you fully having solicitors oversee an agreement is extremely wise in this situation.

This prevents one party saying a buyout was unfavourable or not desired when you get the divorce finalised. 

You will notice we said solicitors (plural), in a divorce situation you should always have your own legal advice separate to your partners. A solicitor acting on behalf of your partner will not necessarily provide you advice or information in your best interests. 

Calculating the Buyout

There are 4 steps you should take before you complete a buyout:

• Get the Property Valued In cases where you’re remortgaging a lender will complete a valuation which is normally done for a small fee.
• Request a Redemption Certificate from the Lender This will outline how much is owed on the mortgage and if there are any Early Repayment Charges (ERCs).
• Work Out the Amount of Equity Once you have the redemption certificate you should subtract the capital amount (not the interest) from the property valuation to get the total amount of equity held in the property.
• Divide the Equity Between Parties According to their Share Once you have worked out the equity, divide this amount between you and your partner to work out how much money the person being bought out is entitled to.

This might sound complicated so we have provided a clear example of how this works.

Your property is valued at £350,000 and after getting the redemption certificate you see the outstanding amount on the mortgage is £150,000 with no ERC. You have a joint tenancy meaning you split the remaining £200,000 equity equally making the buyout £100,000.

Early Repayment Charges

Unfortunately it is not uncommon to find there are early repayment charges when you remortgage to buyout the other person. 

There is no hard fast rule about which of you should pay the ERC and it is up to you both to work out how this is paid for.

For example, the person being bought out might deduct the ERC from the amount they receive, both parties split the cost equally or the person wishing to buyout the other may pay the ERC.

This will be entirely down to your personal negotiations with your partner and a lender won’t care how an ERC is paid as long as it is paid.

Unequal Deposits and Buyouts

If you’re joint tenants and you contributed more in the way of a deposit, you’re not going to have much luck reclaiming that outside of a personal agreement.

The legal standing is that you own 50% of the equity regardless of how much deposit you contributed.

It gets much more complicated if you have protected your deposit amount through a declaration of trust.

You should refer back to the declaration of trust in the event of a buyout to work out how much you get back.

Some declaration of trust documents will entitle you to your deposit back and any share of the equity after, and others will outline that you’re entitled to the deposit back alongside any equity increase associated with the deposit.

For example, if you put in a £20,000 deposit, the declaration of trust might only entitle you to that £20,000 back. Or, you might find you’re entitled to the £20,000 and a percentage of equity in line with how much the property has increased in value so if the property has increased by 5% in value overall you would get £20,000 plus that 5% bringing your entitlement to £21,000.

The devil is in the details and your declaration of trust will outline exactly what you’re entitled to.

Can I Remortgage to Buyout my Partner?

Yes, in fact remortgaging is a very common way of buying out a partner. 

You will need to remortgage the property in just your name and arrange for a transfer of equity from the person you’re buying out.

The lender will then treat the equity held as a deposit and you will need to pass the affordability checks on your own for the mortgage.

You will also need to factor in that the transfer of equity will need to be paid for by the remortgage, so if you owe £100,000 that will come from the new mortgage.

This is mentioned because when going through a breakup, our decision making process isn’t always the best it can be and sometimes people make agreements that don’t leave much equity left in the property for themselves in order to ‘get rid of the other person’.

If a lender doesn’t have enough equity they will decline the mortgage making it very important to follow the steps outlined above and agreeing a fair split regardless of emotions.

What Alternatives Are There to a Mortgage Buyout?

Sometimes a mortgage buyout won’t be the best option for you. You might not have enough equity to complete a buyout particularly if the mortgage is new, the property has lost value or there is a hefty ERC that makes the remortgage unviable.

You might not pass the affordability on your own previously you and your partner had your income combined to meet the affordability requirements and going it alone means you will need to prove the mortgage is affordable on your income alone.

Your circumstances might have changed and your credit score might not allow you to pass the credit checks needed.

There are three main alternatives to a mortgage buyout:

Selling the Property This allows you to pay off the outstanding mortgage and split whatever is left over between you and your partner.

Guarantor Mortgages If you’re having difficulty getting the mortgage on your own you can ask a close relative to guarantee the mortgage using a product called a guarantor mortgage.

Keep the Mortgage In rare cases, some people opt to keep the mortgage and maintain the monthly mortgage payments even if one person no longer lives there. Some divorce settlements even compel people to do this, especially if there are children involved and it was the marital home.

Conclusion

No matter how you cut it, a breakup or divorce is going to be an incredibly difficult time for most people and when a mortgage is thrown into the mix it can be extremely hard on those involved.

Remember, a mortgage is a commitment you made to the bank, not the other person and the bank will require you to uphold that commitment until you have arranged a financial solution to the problem.

Getting a mortgage on your own can be frustrating and at Boon Brokers we have access to lenders that are more flexible than others meaning that even if you have been declined with one lender, we should be able to find something suitable.

Boon Brokers is a whole of UK market mortgage, insurance and equity release broker.

We provide guarantor mortgages too, so if this is an option you want to explore or you want advice about your buyout, contact us for FREE, no obligation advice today!