If your mortgage is shared with someone else, such as your spouse, partner, friend or sibling, then a time may come when you need to buy them out.
This might be due to divorce, breakup, or simply one of you deciding to move out. Either way, you’ll need to arrange a mortgage buyout.
Here’s how you go about buying out the other mortgage holder, including how much it might cost, and the possible alternative courses of action.
How do you buy someone out of a mortgage?
Everyone named on a property’s mortgage is responsible for meeting the repayments – both individually and as a group.
This means (for example) that if two sisters are named on a mortgage, and one doesn’t pay her share, then both she and her sister can be chased for the money.
This applies whether they are joint tenants or tenants in common – there is no way round it.
Mortgage terms describe this as being ‘jointly and severally’ liable for the loan – ‘severally’ here simply means ‘separately’.
Therefore, if partners on a mortgage decide to go their separate ways, one must buy the other out (or, if the mortgage is held by more than two people as tenants in common, those staying in the home must buy out the one who leaves).
Most of this article assumes a mortgage with two joint tenants, but the same rules will apply to tenants in common (of which there can be up to four) unless otherwise stated.
What happens in a mortgage buyout?
In a mortgage buyout, one partner takes over the other’s share of the mortgage on a property, while simultaneously buying out their share of the property itself.
The other person’s name is removed from the mortgage and the title deed. This is often achieved by remortgaging, but can also be done via a product transfer, where you move from your existing deal to a new one with your current lender.
If you buy someone out of a joint mortgage, you’ll need to take ownership of their share of the property – this is called a ‘transfer of equity’.
However, if you own the property as tenants in common, the remaining owners can split the rest of the mortgage and any equity between you.
Again, this may mean remortgaging. Remember that all tenants in common remain jointly and severally liable for keeping up the repayments.
Buying someone out of a mortgage – how do you calculate it?
To buy someone out of their share of a property, you have to work out their share of the equity.
Typically this involved four steps:
- Get the house valued (the lender will do this, usually for a small fee).
- Ask your current lender for a redemption certificate to find out how much is left to pay on the mortgage. This will also tell you about any early repayment charges (ERC).
- Subtract the outstanding mortgage figure from the house valuation.
- Divide the result by the number of property owners.
If you’re divorcing the other mortgage holder, things may be more complicated.
The financial settlement of your divorce will decide on how the house is split between you, so this will determine your final share of the equity.
Can I buy someone out of a shared ownership mortgage?
Yes. As with a fully owned property, you can buy someone out of a shared ownership mortgage in the same way as with a fully owned property.
If you’re already remortgaging to buy out the other person’s share, it may also be a good opportunity to consider ‘staircasing’ (buying out a higher share of the property) at the same time.
This may be a good move if you can afford it, as it will save you the expense of remortgaging a second time.
However, be careful not to overstretch yourself with monthly repayments you may not be able to afford.
How do I get a mortgage to buy out my partner?
If you’re buying out the other holder of your mortgage, you will usually have to borrow more money. You can ask your current lender to lend you more – this is known as a ‘further advance’.
Your lender will carry out additional credit checks to ensure you can afford the full monthly mortgage payments on your own.
Alternatively you can try to remortgage entirely, either with your current lender or with a new one.
A third option is to keep your current mortgage and take out a second mortgage with a different lender to cover the additional amount.
A good mortgage broker will have a lot of experience of this kind of situation, so it’s worth using one.
Your broker can help find you the best deal for your circumstances and save you a large sum over the term of your mortgage.
Mortgage broker fees are typically very low compared to the amount you can save by getting a better deal.
Alternatives to a mortgage buyout
If you can’t afford to buy out your partner, or don’t want to, then here are some of the available alternatives.
- Sell the property and split the equity after the mortgage is paid off
- Ask a close relative to help with a guarantor mortgage – agreeing to pay the mortgage if you can’t. Be very careful though – this is a legal commitment making them responsible for the payments.
- If the split is amicable, keep the home without changing who owns it and carry on paying the mortgage.