Need to buy someone out of a property? Learn how to calculate the cost of buying someone out of a house in the UK with Norton Finance.
Buying someone out of a house can sound intimidating, and not always the nicest of scenarios. However, it doesn’t have to be either of those things.
There are a few reasons why you might want to buy someone out of a house, such as buying out a partner after a breakup or maybe you want to buy your siblings out of an inherited home. Whatever you’re planning, getting to grips with the process and knowing what’s involved can be hugely beneficial.
Learn how to calculate and buy someone out of a house with this guide from Norton Finance.
What does it mean to buy someone out and how do you do it?
Buying someone out of a house is the process of purchasing equity in a house you share with others, to own the house solely in your name. For example, if you own a home with a sibling but they’re moving to another country, you may want to purchase their portion of the equity in the house as they will no longer live there.
This may be a preferable option, as someone without interest in a property shouldn’t be on the mortgage. This is because, regardless of intent, if their name is on the mortgage they can be chased for payments on the property. So, if you go your separate ways but still share joint ownership of a home, you’ll probably want them out.
How does a mortgage buy out work?
To buy someone out of a house, you need to purchase their share of the property, as well as take over their half of the mortgage. Essentially, you’re financially compensating the other party for giving sole ownership to you. Once done, this removes the other party’s name from the mortgage agreement and the title deed.
Usually, you’ll need to remortgage or transfer the mortgage to a new lender during this process, as you’ll likely need to borrow more money to cover the other half of the property. Additionally, credit checks can be different for a sole owner, as you may only have one salary to work with.
Learning how to buy someone out of a house isn’t too tricky, but it’s easier with an example. So, let’s say you were to part ways with a co-owner who was leaving the home and mortgage you were jointly responsible for. At this point, you’ve decided to buy them out. To start, you need to consider the following:
- Will you need to borrow more? Depending on your salary, or the total amount of equity, you may need to borrow more.
- Can you remortgage? Based on your current finances, can you get approved for a mortgage on your own?
- Are you able to do a product transfer? Instead of remortgaging, your current lender may be able to do a product transfer. This moves your current deal to a new one with the same lender.
Ultimately if you can’t complete your transfer of equity because you’re denied a mortgage you may need to look at other options, such as selling.
How to calculate buying someone out
Understanding what’s involved in buying someone out of a house is one thing, but knowing the costs and how to calculate buying someone out is another. Generally, unless specified elsewhere or in a divorce settlement, the house split is 50%. That means, on average, you’d owe them half of the equity in the house if you were to buy them out.
How to calculate equity
To determine if you can afford to buy out your partner or co-owner, you need to know how much their share of the equity is. To do so, you need to:
- Get a valuation: To accurately calculate the cost of buying someone out of a mortgage, you need to get an accurate valuation of the house. Don’t worry, your lender will often do this (for a small fee).
- Request a Redemption Certificate: To get an accurate idea of the amount left to pay on your mortgage, you need a redemption certificate.
- Check for any Early Repayment Charges (ERC): When you request a redemption certificate, it should give you an idea of any early repayment charges.
- Subtract the outstanding mortgage: With the updated house valuation and redemption certificate, you can figure out the total value you’re buying out. To do this, subtract the remaining mortgage amount from the house value.
- Divide the result: Finally, divide the result by the number of property owners. Generally, this means two – but in some cases, it could be more. For example, if you inherit a property with your siblings, you may want to buy them out too.
So, if we use an example where a property is valued at £200,000, and the two owners have a mortgage of £125,000, then they have £75,000 in equity. That means; to buy the other party out, one would need to pay the other £37,500.
Just remember, if you have a shared ownership property, you’ll need to calculate your portions of the share. For example, if you own 50% of the property between you, you’ll only be buying out 25% of the property’s value.
How long does it take to buy someone out?
While buying someone out isn’t a difficult thing in itself, it can arise from difficult circumstances such as divorce or inheritance. That means the time it takes to buy someone out of a property can vary, depending on how amicable the process is.
If every party agrees to the process, and things are handled without friction, it takes four to six weeks on average to resolve a buyout. However, there are scenarios that can delay the process, such as:
- Arguments over the equity split
- Difficulty finding a mortgage lender
- Inability to afford the new valuation
If you can’t afford to buy your partner or co-owner out, there may be other ways to solve the issue of ownership.
What happens if you can’t afford to buy someone out?
If you can’t afford to buy out a partner or co-owner, then you’re left with a few options:
- Sell: The most common option, selling means you can both receive your share of the equity in the property, then go your separate ways.
- Retain Ownership: If selling isn’t an option, and you’re both on good terms, you could opt to retain shared ownership. Just remember this means both parties are responsible for the mortgage still.
- Get Guidance: If you’re unsure what to do about securing a mortgage, a mortgage broker may be able to provide advice to help you improve your chances.
Remember, there’s no point owning a home you can’t afford, as much as you might want to keep it.
Does an ex-partner still have to pay their half of the mortgage?
There are three scenarios you may face when attempting to buy someone out of a house:
- If you buy your partner out, and their name is removed from the mortgage and the title deed, they are no longer responsible for paying the mortgage. That responsibility becomes solely yours.
- If you both sell the house, then neither of you need to pay the mortgage once it’s sold and the transfer of ownership is complete.
- If you retain the house, and do not buy them out or change the mortgage, you are both still responsible. Not paying the half of the mortgage you are obligated to pay will damage your and your partner’s credit file. If your partner refuses to pay their part of the mortgage, you should speak to your lender as soon as possible.
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