How to Calculate Buying Someone Out of a House
- You'll need a property valuation and a mortgage redemption certificate (if you have a mortgage).
- Your conveyancing solicitor from the purchase will be able to tell you how the equity is split unless you have a subsequent deed which alters the shares.
- The main complications come from disputes over how to split the equity.
You may need to buy someone out of a house because your relationship has broken down, one party wants to move on, or you've each inherited a share in a property. For example:
- You and your sibling inherit a house and you move into the house, paying your sibling for their share.
- You and three friends bought an investment flat after university, now one of them is settling down and wants to get their money out to put toward the deposit on their family home; the three of you club together to buy out their share.
- You and your partner have split up, you agree that you will keep the house and buy them out so they can move on.
The buyout process in each of these scenarios is much the same, but the way to calculate your equity depends on a few factors. We'll explain below.
- How do I work out how much equity I have in my house, for my co-owner to buy me out?
- How is a house divided in a divorce?
- What can I do if I can't afford to buy out partner?
- What is a mortgage buyout?
- Calculating the cost of a mortgage buyout
- How to remortgage to buy someone out of a house
- How to buy out your spouse or co-owner with equity release
- FAQs
How do I work out how much equity I have in my house, for my co-owner to buy me out?
The total equity is the current market value minus any outstanding mortgage. It can become more complicated if you don't agree on how to split the equity between yourself and your co-owner. It is fairly straightforward if you are joint tenants and agree on splitting everything equally, down the middle, or if you hold unequal shares which are protected by a properly executed deed of trust.
| i.e. £500,000 |
| i.e. £350,000 |
| i.e. £500,000 - £350,000 = £150,000 This is the total equity |
| i.e. £150,000 x 0.5 = £75,000 This is your share of the equity based on a 50% share |
If you are not legally married or civil partners (including in a divorce or dissolution), you will need to pay stamp duty at the prevailing rate if the share exceeds the current threshold - Calculate your SDLT
The calculation itself is easy, but agreeing on what that percentage of ownership should be can be challenging. As joint tenants, you'll own equal shares, and as Tenants in common, your shares should be set out in your title deeds or a more recently executed deed. Issues can arise where the beneficial interest has not been protected with a legally drafted deed, particularly where a relationship has broken down, parties have become bitter, and what seemed 'fair' when things were going well doesn't seem fair any more.
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How is a house divided in a divorce?
In divorce, the family courts can settle the division of the house. They must consider several factors and make a decision which is fair to both parties and ensures everyone's needs are met as best as possible. They can order a buyout or sale, or they can defer the disposal of the property with a Mesher Order, until the youngest child reaches 18, for example. We discuss 'fair' divorce settlements in our FAQs.What can I do if I can't afford to buy out partner?
Most people who jointly own property don't have the cash to buy out the other party's share. The last resort would be to sell the house and split the proceeds, and this can be the 'cleanest' solution if you don't have any sentimental attachment to the property. However, there are a few other options to exhaust first if you can't afford to buy out your co-owner:
- Remortgage alone - If you have a large enough income to become solely responsible for the outstanding mortgage and borrow the rest of the funds you need to buy out the other owner's share of the house, you may be able to remortgage the property in your own name.
- Continue to co-own - If your split is amicable and the other party doesn't need to get their money out immediately, you could continue to co-own but not cohabit. You could pay the other owner rent on their share, although most often on mortgaged property, the rent is offsets the mortgage payments, as they would continue to be liable, even if they don't live in the house any more.
- Buy out by a third party - A third party could buy out the existing owner's share and you can remortgage together.
- Bring a third party onto the mortgage - If you can find a third party who is willing to take on the liability of the mortgage without the benefit of being a legal owner, you can remortgage with a Joint borrower sole proprietor mortgage, where the third party becomes liable for the mortgage and their income is added to yours when the lender decides how much they are willing to lend; this can enable you to afford to keep the property. See also: Guarantor Mortgages
- Equity release - If you are nearing retirement, you probably won't be able to borrow much more with a standard mortgage, as you won't be working for long enough to pay it off. You may be able to release all or some of your share of the equity to buy out your co-owner's share in the property. The equity you release now, plus interest, is repaid from the sale of the property when you die or move into long-term care. Be very careful when choosing an equity release product, as they can mean there is nothing left of your estate for your loved ones to inherit.
What is a mortgage buyout?
A mortgage buyout is the most typical route; you buy out their share of the equity and remortgage to buy someone out of a house, putting all of the debt in your own name:
Calculating the cost of a mortgage buyout
On top of the amount you'll be paying for the equity using the calculations above, you'll need to pay for the property valuation. We offer valuations from our nationwide panel of RICS accredited surveyors, from just £360 INC VAT.
You may have to pay early repayment charges to your mortgage lender, which will be outlined in your mortgage redemption certificate, it is typically between 1% and 5% of the remaining debt.
You'll also have to pay SDLT on the transfer if you're not married or civil partners (you don't have to pay if the buy out is part of a divorce or dissolution) and the value of the share being bought out exceeds the current threshold. Use our Stamp Duty Calculator to work out your tax liability.
How to remortgage to buy someone out of a house
The process for buying someone out of a house is as follows:
- 1Determine their share of the equity
As joint tenants, you share the whole property equally, so if there are two of you, you each have a 50% share. If there are three joint tenants, you each own 33.33%. Four, you own 25%, etc. If you are tenants in common and own unequal shares, these should be set out in a properly drafted deed of trust, which is often registered on the title deeds and the Land Registry. If you disagree on how the equity should be divided, get in touch, we can help.
Once their percentage share has been determined, use the method above to calculate their share of the market value.
- 2Get a new mortgage offer
If you've got the cash to buy out the other owner's equity, you'll just need a lender to grant you sole responsibility over the outstanding debt. If you need to borrow more to fund the buyout, you may find it harder to get a mortgage to cover the whole amount in your sole name. If you need to borrow more than the lender is happy with, based on your sole income, you can ask a guarantor to guarantee your mortgage; they'll be liable for your repayments if you fail to pay. You can't go forward with the transfer until the new mortgage is in place.
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- 3Buy out their share with a transfer of equity
Once the funding is in place, you pay to buy out the share with a transfer of equity. The exiting owner signs over their share of legal and beneficial interest to you, transferring the ownership of their share of the equity, and your solicitor will send their solicitor the agreed funds (which may involve drawing down the funds from the new mortgage lender)
How to buy out your spouse or co-owner with equity release
Equity release may be a good option if you have little to no mortgage and are retired or close to retirement.
For example: you and your spouse each own half of a property worth £300,000 and you have no mortgage. You need £150,000 to buy out their share, and you own £150,000 worth of equity already. You have £100,000 available from the sale of a second property you owned together. If you use an equity release product to free up £50,000 of your own equity, you'll have enough to buy out your partner's share and become the sole owner.
Some equity release deals involve an interest-only monthly payment, where you'll pay the interest each month on the £50,000 loan, and £50,000 will be deducted from the proceeds of the sale of the property when you die or move into long-term care. Other products 'roll up' the interest, meaning the total amount which will be deducted to repay the loan plus interest can increase to quite a high figure, sometimes leaving very little left in your estate to pay for end-of-life care or bequeath to your loved ones.
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
