Got a question about mortgages? Email in and we’ll get one of our experts to reply. Sian Thomson, the founder of Prestige Mortgage Solutions, has given her advice to a reader below. If you have a question for our experts, email us at [email protected].
‘I am divorcing my husband of 10 years. We own a three bedroom house together. How can I buy him out of the mortgage?’
Sian replies: With research showing that UK divorces have risen by 9.6 per cent since 2020, there’s a growing number of people who are separated from their partner but stuck with both names on the mortgage.
I’ve certainly noticed an influx of clients asking for advice on buying a partner out of a mortgage. This came to a head in January of this year – which was dubbed “divorce month” by solicitors as approvals for mortgages went down by 20 per cent at the end of 2022.
As the cost of living continues to skyrocket, I’ve seen more and more separated couples who are wholly unsure of where they stand financially which, coupled with the pain of divorce, can be an incredibly stressful and vulnerable place to be in. But, when it comes to buying your partner out of your mortgage, there are certainly some important first steps to be taken.
Whether you were married or not, the process of buying someone out of a house is the same – but married couples will need to wait until the financial side of the divorce is officially settled before proceeding. I’ve seen some borrowers request a mortgage capacity assessment report, which can be shown in court as proof of their ability to obtain a mortgage after divorce.
I would advise someone to buy out their partner’s share of their property through a transfer of equity – the legal process of changing ownership – but it’s incredibly important to carefully consider the terms of the buyout and the effect on the cost of the property before proceeding.
How does a transfer of equity work?
It likely feels like the pressure is on, and separating couples usually feel as if the process of buying each other out is incredibly cold so soon after a painful split, but the steps never change. There are four crucial steps to completing a transfer of equity that I have been walking more and more clients through in recent years:
- Obtaining a valuation of the property: In order to determine the value of the property, you’ll need to obtain a valuation from a professional valuer or estate agent. This will help to ensure the property is being transferred at the correct price.
- Negotiating the terms of the transfer: This may include the amount of money being paid for the transfer and 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 ownership is changing, the mortgage has to be adjusted to match. This is normally a good opportunity to re-mortgage over to a new lender and borrow any extra money that is needed for the buyout. Remember that your 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.
- Using a solicitor: Make sure you use a solicitor to handle the legal aspects of the transfer, such as preparing necessary documents and ensuring that the transfer is registered with the Land Registry. Providing that the decisions are amicable, you should be able to use the lender’s solicitor for a reduced fee.
Is it easy to get transfer of equity mortgage?
For the most part, transfer of equity mortgages are generally straightforward to obtain – but I warn anyone in the process of buying their partner out of their mortgage that they will need to demonstrate affordability and pass a credit check in order to be accepted by their lender. Lenders will also want to ensure that all parties involved in the transfer are legally entitled to do so, so using a solicitor who can provide evidence that everyone has given their permission for the transfer to take place is essential.
From my experience, you may also need other documents such as proof of income or bank statements from anyone whose name is going on the mortgage. Ultimately this process shouldn’t be difficult if everything is in order and everyone involved has agreed to the terms of the transfer.
How do you calculate a mortgage buyout
The amount you need to pay your partner in order to buy them out is typically calculated by subtracting any outstanding balance on the mortgage from the current market value of the property. This 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 a quick property valuation, I’d either use online tools for a rough figure or contact local estate agents for a quick appraisal.
What if I can’t afford the buyout
If you can’t afford to buy your partner out of a mortgage, there are a few different options to consider. The most common option, and the one I would recommend in this circumstance, is to sell the property. It may not be your ideal option, but it allows both parties to receive their share of the equity 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, which I’ve seen become messy when the partners aren’t communicating effectively.
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.
Sian Thomson, is the co-founder and director of Prestige Mortgage Solutions