Going through a break up is tough – and we don’t just mean emotionally. It can also be a struggle to work out what you need to do financially as well.
Money can add to the already difficult situation of divorcing or separating from your partner – especially when you have a mortgage with the other person.
Keep in mind that if your name is on the mortgage, you’re responsible for paying it – along with your partner – until you come to a formal solution. Stopping paying can have a serious impact on your credit history and put your home at risk.
If you want to stay put in the house (maybe your kids go to the local school, or maybe it just works for you and your routine to stay in that property), whatever the reason, you’ll need to pay your partner what they’re owed. In a typical case, this would be half of what is called ‘equity’ in your home, although it may depend on how much you both put into buying the house.
"To work this out, you need to get a valuation."
To work this out, you need to find out how much the house is worth – this is called getting a valuation. This is where an independent professional comes round to assess what the market value of the property is, for example, what it could sell for if you were selling based on the sale prices of other local properties.
Once you’ve got this, you then need to take away the amount you have outstanding on your mortgage from this figure. The number you’re left with is the equity, and you’ll most likely – although not necessarily - owe your ex half.
Split down the middle?
Let’s look at an example. If your house is valued at £200,000 and together, you and your partner have paid off £50,000, then this plus the original deposit you put in is the equity.
A cut of that is what you will owe your partner. And the amount (it’s not always 50/50) can either be decided between yourselves (if your split is amicable), or by a solicitor if not.
Say, for simplicity, it is split 50/50, then it’d cost you £25,000 to buy your partner out of the mortgage, while you’d also owe them for whatever they put in for the deposit.
Remortgage in your sole name
It is probably unfeasible to suggest that you’d have £25,000 spare savings to just hand over to your former partner.
So if you can’t pay them off outright with cash or borrow the money another way, you’ll need to remortgage for a higher amount to free up the money that you owe them.
Using the example above, if you remortgage for £175,000, then you can raise the £25,000 to give to your ex and cover the sum outstanding on your original mortgage. And if you also needed to cover their part of the deposit, you’d need to apply for more.
"When you buy someone out, you need to remove them from the mortgage."
When you buy someone out of a mortgage, as well as financially paying them off, you then need to remove them from the mortgage – this is a called a Transfer of Equity.
Bear in mind, though, that as you’ll be taking out a larger mortgage – and probably in your sole name – your lender may refuse your application based on their affordability criteria. In this case, you may need to look into other alternatives, like selling the house and moving into a less expensive property.
A little bit of support
We know it’s a really stressful time when you break up with someone and hopefully this blog will explain how you can go about taking them off the mortgage if you share a property.
Remember this is a difficult time, and there is help available if you need further advice.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.