If you own a property with an ex partner, family member, friend, or someone else, you may decide you want to become the property's sole owner.
To do this, you need to buy the other owner out of the property. But there are a lot of steps to get there, and a fair few calculations involved.
In this article, we'll be going through how you calculate buying someone out of a house to gain full ownership of your property, and how to fund it.
If you own a property with someone else, you're in joint ownership with that person. This means you'll both be registered as owners with the Land Registry, and you're both responsible for mortgage repayments.
Read more about Land Registry services here.
If you want to take over your co-owner's share of the property, you have to buy them out and give the other owner their equity share in order to remove them from the mortgage.
There are plenty of different reasons as to why someone would want to buy their joint owner out of a house. Common examples include wanting to remove an ex partner from the mortgage in a separation or divorce, or wanting to be the sole landlord of a property.
Ultimately, if someone wants to be solely responsible for a property as the only owner, they need to buy their co owner out.
When you buy someone out of a house, you're buying the other party's share in the property. This is a legal process known as 'transfer of equity'.
A property's equity refers to the difference between its value and how much you still owe from the mortgage deal (as well as any other debts, charges and fees). For example, if your house is valued at £200,000 and you have an outstanding mortgage of £50,000, the equity in the property would be £150,000.
So when you buy someone out of the property, you'll pay for their share of the equity to become the sole owner.
If you want to buy someone out of a house, you'll need to work out how much equity the co-owner shares in the property so you know how much you need to pay to buy them out.
Remember - it's not always a 50/50 split, and it depends on whether you're property owners as joint tenants or tenants in common.
Joint tenancy and tenants in common are both ways you can buy a property with someone else in the UK.
Joint owners don't own separate shares, which means they have completely equal rights to the property, and they share responsibility for the mortgage repayments. In the case of joint ownership, if one tenant dies, their legal interest in the property is transferred to any surviving tenants. This is regardless of whether or not their Will leaves it to someone else.
On the other hand, tenants in common own completely separate shares in the property, which means they're only responsible for their personal share of the mortgage. Tenants in common don't have to own equal shares in the property, and if one tenant passes away, their share in the property is given to whoever they leave it to in their Will.
Because the shares are often laid out in a common agreement, it's quite simple to work out how much you need to pay any joint owners if you want to buy them out.
Joint tenancies tend to be less straightforward because you can't sell the property without severing the joint ownership first. Once the tenancy is severed, each joint tenant will receive their share of equity (which won't always be an even split).
The first thing you need to do is work out your property value. You can often get a free valuation from an estate agent, but it's better to get a more formal valuation from a conveyancing solicitor if you're going through a house buyout. This will often come with a small fee.
For an instant property valuation, use our Online Valuation Tool today!
To calculate your equity, you'll first have to ask your current mortgage lender for a redemption certificate. This will tell you how much more money you need to pay on your mortgage deal, as well as any early repayment charges and other fees. The redemption figure of your mortgage will also show you how much equity you have in the property.
You'll then need to subtract the remaining mortgage amount from the property value, which gives you the total equity of the entire property.
Once you have the total equity, you can work out how much equity each owner has. The amount of equity for each owner will depend on the percentage share - this may sometimes be a 50/50 split, but that's not always the case.
If the calculation is more difficult (for example it could be a part of a divorce settlement) it's always better to seek the support and guidance of an experienced solicitor who can ensure everything is done correctly.
By law, you can't buy someone out of a property without the consent of your mortgage lender. Because a buyout means you'll become responsible for their share of the mortgage payments as well, your lender will need to do an affordability check to ensure you can afford these payments on your own. This will include running credit checks and examining bank statements.
Lenders will run their own mortgage affordability checks differently. For example, some lenders may take self-employed income or dividend income into account, whilst others will base it solely on a salary. To find the right lender, it's often recommended to seek the advice of a mortgage broker.
An experienced solicitor will be able to complete all the legal paperwork on your behalf, whilst also registering the change in ownership with the Land Registry.
They can also act as a middleman between you and your lender if you have a mortgage over your property.
You can read more about using a solicitor during a buyout here.
Your co owner's share of equity isn't the only cost you need to consider when buying someone out of a house. Remember to factor in the following:
Conveyancing and solicitor fees: These will depend on which conveyancer you decide to go with.
Land Registry fees: You'll need to update the register for your property with the Land Registry once the other owner has been taken off the property's title. This cost will depend on your property value.
Mortgage broker fees: Mortgage brokers usually don't charge much, but again it will depend on which broker you choose. If you're unsure about where to go, you can use a free broker matching service to find the best mortgage broker to suit your needs.
Stamp Duty Land Tax (SDLT): Unless you're a divorcing couple, you'll have to pay SDLT if you're buying someone out with an outstanding mortgage.
Penalty fees: You may need to pay an early repayment charge penalty fee when you're exiting a mortgage to buy someone out of a house. The amount depends on the lender and the percentage of the outstanding mortgage balance.
There are a number of ways people may raise funds to pay for a mortgage buyout.
Remortgaging: Most people need to borrow more money to fund a mortgage buyout and obtain full ownership. If you want to stay with the same lender, you can apply for a higher mortgage with your current lender. Another option is remortgaging, whereby you get a new mortgage deal with a new lender.
With a remortgage, you need to make sure you can cover the cost of monthly repayments on your own. You can use a remortgage calculator to work out how much you can afford to borrow.
Equity loan: A home equity loan refers to using the equity of your home as collateral. How much you're given will depend on the value of the property.
Personal savings: This could be a great investment in the long-term, but of course it's important you still have enough savings put aside for unexpected costs.
Bank loans: Depending on your credit score, there are other types of loans you may be eligible for besides mortgages. But it's important to note that you'll need to pass affordability checks to pay the mortgage repayments, combined with the additional loan repayments.
Second charge mortgage: Also referred to as a second mortgage, this is a loan secured on your property that's given by a different source to your original lender. The second lender will take second priority to your first lender, which means if the property needs to be sold, the first lender will first call on equity in the property.
How much you can borrow on a second charge mortgage depends on how much equity you've built up in your home. It also means you'll have two mortgages on your property.
Everyone named on a mortgage agreement is jointly and severally liable for meeting the repayments. This means they're responsible for paying back the loan both individually and as a group.
So if one owner doesn't pay their share, it's still up to the other owners to pay that share on time. So if people on a joint mortgage want to separate, one must buy the other out.
In the mortgage buyout process, one owner takes over the other's share of the mortgage, as well as buying out their share of the property. As a result, the other person's name is removed from the mortgage and title deed. You can do this either by remortgaging or product transfer.
You can read more about remortgaging and mortgage buyouts here.
Different lenders will be open to lending different amounts, but it's usually between four to six times your annual income.
If you're self-employed or your income is more unpredictable, it's highly recommended to seek support from mortgage experts who have a vast knowledge of different lenders' eligibility criteria. They'll be able to offer mortgage advice that will help you find the right lender to best suit your needs.
If you're a homeowner in the UK aged 55 or over, you can use an equity release product to help fund a mortgage buyout. Equity release lets you access some of the cash tied up in your home, so you get a tax-free cash lump sum which you can use to help pay the other owner in a mortgage buyout.
How much you can release from your home depends on your age and the value of your home, so make sure you seek legal advice before deciding if you want to go down this route. You also need any existing mortgage on your home to be cleared.
However, it's important to remember equity release reduces the value of your estate and could also affect your eligibility to means-tested benefits.
Sell the property and share the proceeds: You can sell the property and use the proceeds to repay any outstanding mortgage debt, and any other debts, and then share the remaining profits.
Maintain joint ownership: Maintaining joint ownership can be a good option if you're on good terms with the family member, ex partner or fellow owner, or if there are children involved and they need to stay in the family home for stability.
With this option, both of you will have to share the costs involved, but that may be settled in a divorce settlement, for example in spousal maintenance payments.
The key method to calculate buying someone out of a house:
If you have any issues, make sure you seek guidance from the experts: solicitors, conveyancers and mortgage brokers. They'll have the expertise to ensure the process is as smooth and seamless as possible.
You can kickstart your buyout journey with our instant Online Valuation Tool today!
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