Do you share your mortgage with someone else? Are they moving out?
Whether you share your mortgage with a friend, partner or spouse – and whether you’re parting ways because of a divorce, breakup or change of circumstances – by buying your partner out of the mortgage, you could continue living in your dream property for as long as you want. Sound good? Here’s all you need to know.
What does it mean to buy your partner out of a joint mortgage?
Okay, so first things first: it’s important to know that everyone listed on the mortgage is responsible for keeping up the repayments. Yep, that’s right. Even if your partner moves out of the property, they can still be chased for the mortgage repayments – unless you buy them out.
When you buy your partner out, their name is removed from both the mortgage and the property’s title deeds. In other words, you take ownership of their share of the house (known as a transfer of equity) and you become solely responsible for paying the mortgage. Your home’s all yours.
The same goes if there are more than two of you listed on the mortgage. If someone leaves, one of you could buy off their share on your own, or you could all pitch in to split it. For the time being though, we’ll assume there are only two of you!
How much does it cost to buy your partner out?
As you can imagine, buying your partner out of a joint mortgage isn’t cheap, especially if they’ve made a lot of mortgage repayments and contributed towards the deposit.
Here’s how to work out how much it’ll cost.
- Decide how to split the property’s value: Has one of you contributed more to the property financially than the other? Are you buying your partner out as part of a divorce settlement? You’ll need to decide whether to split the house’s value 50:50 or whether one of you gets more than the other. If you can’t agree, you might need a solicitor’s help.
- Find out how much it’s worth: You’ll need to get your property valued to find out how much it’s worth. Your lender can do this for you (that’s the organisation that actually gave you your mortgage), although they’ll normally charge you a fee.
- Find out how much is left to pay: Your lender can give you a redemption certificate to show you how much of your mortgage you still have to pay off. This will also lay out any early repayment charges you’ll face for leaving your mortgage early.
- Do the sums: If you take the amount left to pay on your mortgage away from your property’s value, you’ll be able to see how much equity you own between you (that’s what the amount you own outright is called). If we assume you decided your partner gets 50%, then you can just divide that figure in two and voila! That’s how much you’ll need to pay to buy them out.
Confused? Don’t worry, it’s a lot easier than it sounds. Here’s an example to prove it...
Let’s say you bought your house for £200,000. Your partner put down a £20,000 deposit. And since then, you’ve paid off £60,000 of your mortgage between you. Assuming you’re splitting the value of the house in two, it’ll cost around £50,000 to pay off your partner. That’s half of the amount you paid off together (£30,000) plus the deposit your partner paid upfront (£20,000).
Now, obviously, £50,000 is a lot for most people to cough up in one go. So, you might need to remortgage to get hold of the cash. Which leads us onto...
How do you buy your partner out of a joint mortgage?
Most of us can’t afford to just buy a partner out using our savings. So, it often means taking out a new, bigger mortgage (known as remortgaging) to release some equity for the partner that’s leaving. In other words, you’ll end up paying your partner off by borrowing more from your mortgage lender.
That said, if you can pay them off in cash, you may be able to stick with the same mortgage and just change the names on it, known as a ‘change of borrower.’
Either way, you’ll need to prove to your mortgage lender that you can afford the monthly repayments on your own.
Put it like this: when your lender first agreed to give you a mortgage, they would have looked at how much you and your partner were earning together. Now that you’re hoping to repay the mortgage on your own, they might be worried that you’re not going to be able to afford it.
Normally, you can get a mortgage that’s around 4.5x the amount of your yearly income.
Not going to stretch far enough? Don’t panic. You could consider taking out a guarantor mortgage. This is where someone close to you (usually a family member) agrees to pay your mortgage if you can’t.
Just be careful: these arrangements are legally binding and usually involve your guarantor putting their own property up for ‘security.’ This means that if neither of you can afford to settle your mortgage repayments, their house could get taken away from them! So, take some time to think things through carefully before jumping into anything.
What other options are there?
Buying your partner out of a joint mortgage isn’t your only option if you split. Here are some other things you could explore.
- Sell the property: This is probably the simplest solution when you part ways with a partner. If you sell your property, you can pay off the mortgage there and then and split the equity between you.
- Keep a stake in the property: If you can’t afford to buy the property back completely, your partner could keep a stake in the property. This would mean a small percentage of its value would still belong to them, even though they don’t live there. Then, when it’s sold, they’ll get a percentage.
- Keep things as they are: Just because your partner’s not living in the property, that doesn’t mean they can’t continue to own it with you. As long as between you, you ensure the mortgage is paid, you’ll both get a share of the equity if and when it’s eventually sold.
- Mesher and Martin orders: If you’re going through a divorce and you live in England or Wales, you might be eligible for a Mesher or Martin order. These are court orders that keep the property in both partners’ names but allow one of you to carry on living in it for a given period of time.
Over to you
Whether your mate’s just decided to move out or you’re facing a difficult breakup, parting ways with the person jointly responsible for your mortgage can be tough. But luckily, by buying your partner out, you won’t need to say goodbye to your home as well.
If you’re seriously thinking about buying your partner out of your joint mortgage, why not get in touch with a mortgage broker to talk things through and get some advice? In what’s likely to be a difficult time, they’re sure to make the mortgage side of things a whole lot easier!