Splitting up, co-owning house

direstraits5

So what's the normal way of doing things if someone wants to buy the other out: get a few valuations, and the person buying out has to pay the other back their deposit and half of any increase in the house's value?

RAS

What arrangement did you and ex agree when you bought the house? Is that documented in any way?

Is the property held as a joint tenancy or tenants in common? If you are not sure, look at the deeds on the Land Registry. Costs £7, do not use the sponsored links.

If neither of you is buying the other out, it needs to be on the market, pronto

Exodi

direstraits5 said:

So what's the normal way of doing things if someone wants to buy the other out: get a few valuations, and the person buying out has to pay the other back their deposit and half of any increase in the house's value?

Well you have to agree on how much money is required to buy the other persons equity, which can be driven by how you hold the house (e.g. Joint Tenants, where you might expect to split the equity between you, or Tenants in Common with a Deed of Trust, which stipulate that one person is entitled to more equity than the other).

Once you confirm the proportion of the split, you can then estimate the equity you might each be entitled to. This can be by agreeing a valuation on the property (which can be based on the lenders assessment and/or looking at what comparable houses sold for nearby recently and/or getting estate agents round, though personally I think that's last resort) and then subtracting that from your outstanding mortgage. Inevitably the person doing the buying out will insist on the lowest valuation, whereas the person being bought out will insist on the highest. You will also want to consider that the solicitor will likely want at least £1k for facilitating the transaction.

So let's say you own as joint tenants, you agree your house is worth £300k and you have a £200k mortgage. Therefore you are both entitled to half of the £100k equity, or £50k each. To buy your ex out, you will need to give her £50k.

The easiest way to do this, will be taking £50k out of your pocket and giving it to your ex if signs over her equity, however for those that don't have that sort of money lying about, you can do this through additional borrowing aka a 'Further Advance', which is effectively a second mortgage that runs alongside your main one with it's own fixed term and rate. The biggest challenge is nearly always in affordability, because in this example above, you would need to meet affordability for a £200k+£50k = £250k of borrowing in your sole name, which working backwards from a typical 4.5x multiplier requires your annual income to be at least £55.5k. If it is, great news - you can instruct a conveyancing solicitor to perform a transfer of equity with you and also speak to your mortgage lender about a further advance.

Effectively then your ex will then need to sign a bit of paper (called a TR1) that states they are handing over their equity to you for £50k. Once signed, your solicitor can complete the transaction and send them the money.

It's worth noting that the agreed equity figure can be whatever you agree between you (though if there is disagreement, of course you revert to how you own the property and independent valuations). Some take a reduced amount of equity to get it agreed quicker, some take more if there is background to the split.

If you can't afford to take the mortgage+additional borrowing in your sole name, the house will need to be sold. While this is unfortunate because it means you will pay a decent chunk in estate agent fees and may pay ERC's on top (both reducing the equity that might have been available in a buy out), it's perhaps the fairest way to split equity because you're not 'guessing' what the house is worth - you can just split whatever is left over. There can be some issues here if one person lives in the property and may deliberately impair the sales process (e.g. having an unreasonably high expectation of the sales price, sabotaging viewings, etc).

TL;DR first confirm how you own the house (joint tenants, tenants in common), second estimate the equity and agree how much your ex can be bought out for, third confirm with your lender that you would meet affordability on the current mortgage and additional borrowing, fourth instruct a solicitor and conduct a transfer of equity. If you don't meet affordability, instruct an estate agent and sell the house.