Life can be unpredictable, and a joint mortgage is not always sustainable. As a mortgage broker, I’m often approached by clients looking to buy a co-owner out of their house or vice-versa.
You can buy a co-owner out of a house with a new mortgage or remortgage. For example, if you divorce or wish to transfer ownership of your home to a child. When negotiating the sale price and terms, it’s vital to get legal, financial and mortgage advice to ensure the process is fair and efficient.
Buying someone out of their property involves various legal, financial, and personal considerations. In this blog, I will explore the complexities involved in property buyout, so you can take the first step with confidence.
What is a mortgage buyout?
A mortgage buyout usually occurs when one or more parties want to sell or remove themselves from the mortgage. They agree on the terms and the exiting party’s share of the equity before applying for a new mortgage or remortgage.
This happens for a variety of reasons, for example, the property owners divorcing and parents that want to sell their home to a child with a gifted deposit.
If both parties are named on the mortgage deeds, the remaining party can remortgage the property into their sole name or take a joint mortgage with a new co-owner, partner or spouse.
How do mortgage buyouts work?
A mortgage buyout can be achieved via remortgage or a brand-new mortgage deal.
In a recent case handled by Goldmanread, a client wished to remove herself from her mortgage and transfer the property to her son, (who was already named on the mortgage), and his new wife.
The best route in this case was to remortgage the house into the joint names of her son and his wife. As part of the remortgage, the client wished to raise funds to use towards the purchase of a new property in her name.
The remortgage was applied for in the standard way, with the maximum loan being based on the joint incomes of the son and his wife. A valuation was carried out on the house to determine how much equity was due to the mother.
A remortgage was then arranged with sufficient funds to repay the remaining mortgage balance, plus a release of equity to contribute to the purchase of the client’s new property.
The solicitors responsible for the remortgage process arranged for the title deeds at the Land Registry to be updated, transferring the ownership of the property from the mother to her son and wife. As a result, the mother was removed from the deeds, and her ownership of the property ended, allowing her to move out of the property.
Do you keep the same mortgage, or will you need to get a new mortgage?
Whether you choose to keep the same mortgage or arrange a new mortgage during a buyout depends on several factors:
1) Will your existing mortgage lender allow the release or addition of a borrower? This usually depends on the lender’s affordability assessment. If they find the existing applicant cannot afford the mortgage alone, they will likely decline.
2) Are there any early repayment charges on the existing deal? Exit fees may apply if the current mortgage is a preferential deal. In this case, it may be better to keep the existing mortgage in place, subject to the lender’s agreement.
3) Is the current mortgage a good deal? If the current deal isn’t all that competitive, it is worth researching new deals from other mortgage providers.
Who can be bought out of a mortgage?
Any party to the mortgage can be bought out, whether it be a parent, ex-partner, friend or sibling.
“Joint tenants” means that each party is listed on the deeds. If one party dies, the remaining party has the right of ownership of the whole property.
Effectively, this means you can’t leave part of your ownership of a property to a third party. This may cause issues for those in later life who meet a new partner and also want to leave some of their assets to their children.
Tenants in common
“Tenants in common” means that each person owns a share of the home. The shares may be of unequal value, i.e. 60/40. Therefore, if one party has more equity in the property, they have greater ownership of it.
One advantage of this form of ownership is that if one party dies, the share is not automatically transferred to the other owner. Instead, a share can be left to someone else in your will.
How to buy someone out of a house
The buyout process begins with the co-owners discussing and agreeing on the terms to reach an agreement on the balance of equity and the sale price of the property.
Of course, agreeing on the purchase price and share of the equity in the property can be difficult, especially where divorce is driving the buyout. If a co-owner disagrees with the amount of shared equity in a property, mediation or even legal proceedings might be required to reach a mutually acceptable agreement.
It’s advisable to seek legal advice and explore alternative dispute resolution methods to minimise costs, speed up the buyout process and avoid potential damage to relationships.
There are two main ways of getting a property valued during a buyout:
1) Arrange an estate agent valuation – Goldmanread usually recommends getting three different estate agents to carry out a property valuation. The estate agents will have access to comparable price information, so it should be fairly accurate.
2) Pay for an independent property valuation from a local, qualified surveyor.
2. Instructing a solicitor
A mortgage buyout requires various legal documents to be filed, such as a transfer of equity deed, so it’s best to instruct a solicitor. You can either instruct your own solicitors, or it can be arranged by the remortgage solicitors as part of the process.
3. Speak to a specialist mortgage broker
When deciding on your strategy for a mortgage buyout, it is important to take advice from mortgage professionals. At Goldmanread, we have been providing this kind of mortgage advice for over a decade, and have helped hundreds of clients to complete a smooth mortgage buyout during that time.
4. Obtaining consent from the mortgage lender
To remove an owner from a mortgage, you must get consent from the existing mortgage provider. They have to give their formal agreement and satisfy themselves that the remaining sole owner, or new parties to the mortgage, can afford the monthly repayments.
This involves an assessment of the remaining owner’s annual income and credit rating, just as during a regular mortgage application.
5. Transfer of equity deed
Once agreed, the next step is to arrange for a mortgage to release the equity to the exiting party. During this process, a transfer of equity deed must be signed. The instructed solicitor will then register the transfer with the Land Registry.
The party being removed from the mortgage is advised to take independent legal advice before signing the transfer or equity deed.
Looking for mortgage advice? Get in touch
If you need advice on whether you can buy someone out of their house, please contact the experts at Goldmanread. We can guide you on the best option depending on your circumstances, whether that be a remortgage or a new mortgage.
As amortgage broker, we have access to hundreds of mortgage providers, so you can search for a deal that best fits your current circumstances and future goals.
Frequently asked questions about buying someone out of a house
What happens if you can’t afford the mortgage repayments on your own?
Most mortgage lenders will only approve a mortgage buyout if the repayments are affordable for the remaining party. So if you are unable to afford the mortgage payments on your own, unfortunately, it’s unlikely that a mortgage buyout is a viable option.
Do you need a deposit to buy someone out of a house?
Unless you have substantial savings, you will need to put down a deposit on the property (i.e. take out a mortgage) to buy the other person’s share.
How long does it take to buy someone out of a property?
The purchase/remortgage process can take between 6-10 weeks, depending on the complexities of the transaction.
Do you pay stamp duty if you buy someone out of a house?
In some cases, stamp duty may be payable on an equity buyout. It’s important to consult a solicitor to clarify whether stamp duty is due.