Are you looking to buy out your partner in a mortgage, but unsure of how to go about it?
This process is known as a transfer of equity and it can be a complex process with many different options to consider.
But don’t worry, we’ve got you covered. In this article, we will guide you through the steps of buying out a partner in a mortgage, from understanding the different options available to you to negotiating the terms of the transfer.
What is a mortgage buy out?
A mortgage buy out is the process of transferring ownership of a property that has a mortgage on it from one person to another.
This can happen for a variety of reasons, such as:
One partner wanting to buy out the other’s share of the property
This might occur if one partner wants to take full ownership of the property, or if the parties want to change the ownership percentage. In this case, the buyout can be done through a transfer of equity, which involves negotiating the terms of the transfer and obtaining the consent of the mortgage lender.
The parties wanting to change the ownership percentage
If both parties are still interested in owning the property, but want to adjust the ownership percentage, a buyout can also be done through a transfer of equity. This might occur if one partner wants to sell a portion of their share to the other, or if the parties want to even out the ownership percentage (e.g. if one partner originally put more money towards the down payment).
It is important to carefully consider the terms of the buyout and the impact on the overall cost of the property before proceeding.
This will involve obtaining a valuation of the property, negotiating the terms of the transfer, and obtaining the consent of the mortgage lender. It is also necessary to use a solicitor to handle the legal aspects of the transfer, such as preparing the necessary documents and ensuring that the transfer is registered with the Land Registry.
Buying someone out after divorce
Whether you were married, or not, the basic process of buying someone out of a house is the same.
However, for married couples you do need to wait until the financial side of the divorce is officially settled, before proceeding.
Prior to this, some borrowers will request a mortgage capacity assessment report, which can be shown in court and is proof of their ability to obtain a mortgage (or not) after divorce.
Our guide to mortgages and divorce has some useful information regarding this.
How does a transfer of equity work?
A transfer of equity is the legal process of changing ownership. This will involve several steps, including:
Obtaining a valuation of the property: In order to determine the value of the property, it will be necessary to obtain a valuation from a professional valuer or estate agent. This will help to ensure that the property is being transferred at the correct price.
Negotiating the terms of the transfer: Once the value of the property has been determined, the parties will need to negotiate the terms of the transfer. This may include the amount of money that is being paid for the transfer, as well as any other terms that need to be agreed upon (such as whether the transferring party will retain any ownership rights or responsibilities).
Changing the mortgage: If the ownership is changing then the mortgage has to be adjusted to match. This is normally the opportunity to re-mortgage over to a new lender, borrowing any extra money that is needed, at the same time.
Using a solicitor: It is necessary to use a solicitor to handle the legal aspects of the transfer, such as preparing the necessary documents and ensuring that the transfer is registered with the Land Registry. Providing that the decisions are amicable, and your situation is relatively simple, you should be able to use the lenders solicitor for a reduced fee.
Can you remortgage to buy a partner out?
Yes, it is possible to remortgage a property in order to buy out a partner’s share and change a joint mortgage to just one person. This typically involves taking out a mortgage with a new lender in order to pay off the existing mortgage and also raise the extra money needed for the ‘buy-out’.
It is important to note that when you remortgage, the new lender will take into account your current financial situation and credit history. This means that you will need to demonstrate affordability in order to be accepted for a mortgage.
Having any bad credit will affect your remortgage choices, and you will have less lenders to pick from. Buying someone out is just one of several options when remortgaging, in a separate article we look at the Top 8 acceptable reasons for a remortgage.
Learn more in our Remortgage Guide.
Do you need a solicitor?
Yes, it is necessary to use a solicitor to handle the legal aspects of remortgaging in order to buy out a partner’s share. They will prepare the necessary documents and ensure that the transfer is registered correctly with the Land Registry.
The solicitor will also be responsible for other legal aspects of the transfer, such as:
- Ensuring that all parties sign the necessary documents
- Making sure that there are no outstanding debts or charges against the property that must be settled before completion
- Transferring any funds required in order to buy out a partner’s share.
- Registering the new ownership with the Land Registry.
As mentioned earlier, providing that the decisions are amicable and your situation is relatively simple, you should be able to use the lenders solicitor for a reduced fee. However, it is always advisable to speak to an independent solicitor if you are at all unsure about any aspect of the process.
Buying someone out of a mortgage – how do you calculate it?
When buying someone out of a mortgage, you will need to calculate the amount that you will need to pay in order to buy them out.
This is typically calculated by subtracting any outstanding balance on the mortgage from the current market value of the property. The resulting figure is then divided between the two parties according to their respective shares in the property.
For the mortgage figure you will need to contact your lender and ask for a redemption statement. This will detail the mortgage balance plus any other costs needed.
For the property valuation you could use some online tools for a rough figure, or perhaps contact two or three local estate agents for a quick appraisal.
Are transfer of equity mortgages easy to get?
Transfer of equity mortgages are generally straightforward to obtain. However, as with any loan application, you will need to demonstrate affordability and pass a credit check in order to be accepted by the lender.
Your chosen lender will also want to ensure that all parties involved in the transfer are legally entitled to do so. Therefore, it is essential that you use a solicitor who can provide evidence that everyone has given their permission for the transfer.
In addition, they may also request other documents such as proof of income or bank statements from anyone whose name is going on the mortgage. Ultimately this process should not be difficult if everything is in order and everyone involved has agreed to the terms of the transfer.
Finally, it is important to consider the costs associated with remortgaging as this could affect your final decision.
Your lender will usually charge an arrangement fee and a valuation fee in order to process the loan, plus any other legal costs associated with using a solicitor. It is therefore worth shopping around for the most competitive deals in order to get the best value for money.
What happens if I can’t afford to buy my partner out?
If you are unable to afford to buy your partner out of a mortgage, there are a few different options to consider. The most common option is to sell the property. This allows both parties to receive their share of the equity in the property and move on.
Another option is to keep the ownership for now and revisit the situation at a later date. However, this means that both parties will have to continue to make regular mortgage payments.
A mortgage broker will be able to provide guidance on your ability to get a new mortgage. Buying out someone inevitably means borrowing more money so they can receive their share of the equity.
As much as you might want this to happen, it is important to keep an eye on the affordability side of things, if not you could be worse off.