Joint mortgages are extremely useful when acquiring a family home but can cause problems if you separate.
In theory, while each name is on the mortgage, they are equally liable for the full mortgage in the event that the other party is unable to contribute to payments.
There are various ways and means of taking your name off a joint mortgage or taking the name of your previous partner off a joint mortgage.
Some of these options will involve a degree of amicable behaviour between the separate parties, which is not always possible.
Is Selling a Jointly Owned Property the Easiest Option?
In a perfect world, on separation, both parties would agree to sell the family home, pay off the outstanding mortgage and share the surplus proceeds amongst each other.
Things can become a little tricky where one party would like to retain the property, or there is a dispute over each party’s share in the property. This option tends to be popular with couples looking for a clean break and a fresh start.
What Happens in the Event of Negative Equity?
Even though the UK property market has been on a long-term uptrend for many years, there has been a degree of volatility, especially in recent years.
As a consequence, some recently acquired properties may have slipped into negative equity, and as a consequence, the sale of the property would not cover the outstanding mortgage.
If both parties still agreed to go ahead with the sale, then they would be expected to contribute to the additional shortfall.
How Would I Buy Out My Ex-Partner?
Where one party would like to retain the property and take over full ownership, there is always the option of buying out the other party.
It would simply be a case of getting the property valued, adjusting for the outstanding mortgage and then splitting the equity content between both parties to calculate the buyout cost.
Obviously, both parties would need to agree, and then we move onto the next problem, which is funding the buyout.
How Could I Fund a Buyout of My Ex-Partner?
There are numerous ways in which you could fund a buyout of your previous partner’s share in your home.
Remortgaging to Release Equity
Assuming there was sufficient equity in your property, you may be up to remortgage and release enough equity to pay off your previous partner.
As we will cover in a moment, there may be issues with the mortgage affordability test which could remove this option.
Trade Additional Assets
If example your previous partner had a £30,000 equity stake in the property and you held £60,000 in a joint bank account, in theory, you each have a cash pile of £30,000.
It would therefore, make sense to transfer the £30,000 to your ex-partner in exchange for transferring full ownership of the property to you and removing their name from the deeds and mortgage.
There may be an option to downsize your property, pay off your ex-partner and acquire a new home in your name.
We also need to remember that removing a name from a mortgage agreement would trigger a mortgage affordability test for the remaining person.
Retain a Stake in the Property
If you are not able to buy out your previous partner’s share of your family home, there may be an additional option. In exchange for taking their name off the mortgage, you could come to an agreement whereby they will retain a stake going forward.
For example, if they retained a 25% stake in the property, then they would receive 25% of the value of the property when sold.
There is potentially one issue with this option unless a specific amount of money is agreed then your ex would possibly benefit from capital appreciation going forward.
New Mortgage Affordability Test
As we alluded to above, even if you retain your original mortgage but your previous partner’s name is removed this will trigger a new mortgage affordability test.
There are many factors to take into consideration which could impact your ability to pass the test:-
It may be that your single income stream alone is not enough to cover living expenses and mortgage payments.
If you are remortgaging the property in your own name you may not be able to achieve the required LTV ratio to raise additional funds to pay off your ex-partner.
As we touched on above, in the midst of a relationship breakdown, there are occasions where financial liabilities are disputed, and sometimes payments can be missed.
Even if you have previously maintained your share of mortgage repayments, but your previous partner has refused to, this would likely be classed as a missed payment.
This perfectly reiterates the fact that you need to act quickly with regards to joint properties in the aftermath of a separation.
Should I Approach a Mortgage Broker?
Unfortunately, separations are far too common in the modern era, but this has created a niche market for some mortgage brokers.
There may be opportunities to utilise remaining equity in the property, perhaps other collateral or even a guarantor to raise funds to buy out your previous partner.
As you might have guessed, you need to tread very carefully with regards to legal obligations while also fully appreciating any financial liabilities you are taking on for the future.
Keep It Amicable and Sensible
There will be occasions where a separation is amicable, and both parties are fully aware of their obligations and financial liabilities. We have even seen occasions where parties can live together for a short period of time until alternative arrangements can be made.
Often you will see the party with the highest level of income agree to maintain mortgage repayments to guarantee a home for their previous partner and their children.
Alternatively, mayhem can break loose, leading to huge legal fees and constant arguments.
There are numerous ways and means of either removing your ex-partner’s name from a mortgage or removing your own name.
What must be made clear is that the removal of an individual from a joint mortgage must be agreed by both parties.
These are the occasions where it is sensible to take legal and financial advice to protect your rights/assets.
How Can The Mortgage Bank Help?
Here at The Mortgage Bank, we have partnered with some of the UK’s leading mortgage brokers.
They have already helped thousands of people get the best remortgage deal even people that have been refused before, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.