What To Know When Buying Someone Out of a Property

If You Own Property Outright 

If you and your co-owner own your property outright – i.e. without a mortgage – buying your partner out might be relatively simple. In this instance, your first step will be to instruct a couple of local estate agents to provide a valuation of your property. Once you have these valuations, yourself and your co-owner will need to negotiate a fair price for you to pay to them in order to buy them out of the property. 

Unless you are independently wealthy, you will then usually need to obtain a mortgage in order to pay your co-owner for their share of the property. For this, you will need the services of a conveyancing solicitor. 

Untangling a Joint Mortgage

If you and your co-owner hold a joint mortgage on your home then things may be a little trickier and, in this section, we’re explaining the process of buying someone out of a property under these circumstances: 

Calculating the Equity 

Your first step is to calculate how much you will be paying to your co-owner. In many cases, this will equate to half of the equity that you share. Put simply, equity is the value of your home after taking away the amount of money that you still owe on your mortgage. For example, if your property is valued at £400,000 but you still owe £200,000 on your mortgage then your equity is £200,000.

Once you’ve figured out your equity, you will need to negotiate with your co-owner the amount that you will be paying to them. For this, you will need to look at contributions made by both parties. For example, if your co-owner has been paying 70% of the mortgage to your 30%, they might reasonably demand more than just a straight 50% of the equity which, in our example above, would be £100,000. 

The Mortgage Buyout

Buying out your co-owner’s share of the equity is known as a transfer of equity and, again, with our example above, this would mean that you have to pay they 50% of that equity. In addition to the transfer of equity, you will also need to buy your co-owner out of the mortgage that you hold together – this is known as a mortgage buyout. 

In most cases, for this to be achieved, you will need to either remortgage the property or transfer the mortgage to a new one held solely by yourself. Your co-owner’s name will then no longer exist on the home ownership documents and you will have sole responsibility for making mortgage payments on your property. 

If, however, your property is in negative equity – for example, your home is valued at £400,000, but you still have £420,000 left to pay on your mortgage, a buyout will not usually be possible as banks are extremely reluctant to transfer a mortgage under these circumstances. 

Contract Changes

Once you and your co-owner have agreed on a buyout price for both the equity and the mortgage and have sorted out the financing for the buyout, you will need to secure the services of a solicitor in order to seal the deal. 

Your solicitor will walk you through any tax implications for the buyout such as capital gains tax which may affect you or your co-owner. Your solicitor will also draw up a purchase agreement for the buyout to ensure that the transaction is legally binding. 

Final considerations

Finally, a closing meeting will be held to finalise the transaction and to draw up practical terms such as the date on which your co-owner will need to vacate the property. During this time, you should also calculate any outstanding joint finances, such as outstanding bills, and negotiate a fair distribution of these debts. Once all of this is completed, your co-owner should hand over his or her keys and the property is now yours. 

Considering your buy out options…

When you can no longer live with your co-owner for whatever reason, but you don’t want to leave your home, a buyout can be a great solution. 

It can, however, also be an extremely expensive one and, for this reason, you need to think very carefully about whether or not you can afford to buy your co-owner out of the property. 

If you get into dire straits and are unable to cover the mortgage payments on your property, you will potentially risk having your home repossessed, so, taking on a large financial responsibility should never be taken lightly.

Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained finance professional. Be sure to consult a finance professional if you’re seeking advice about buying someone out of a property. We are not liable for risks or issues associated with using or acting upon the information on this site.