Divorce Mortgage
Posted on 25th September 2024 at 16:10
Divorce or a relationship breakdown is never easy, its even more difficult when there is a property involved. If divorcing you are working out who gets what, which could be custody of the children, the dog and other possessions. Your home is the same.
So if you are splitting up, what are your options when it comes to the house?
First of all, the 2 of you need to decide if you are going to keep the house or sell it. If you are going to keep the house, who is keeping it? If you are selling the property that’s the simplest option. Once you have cleared the mortgage you and paid of fees such as the estate agent for selling your house, the solicitor for completing the legal work and any mortgage charges for leaving your fixed rate early.
But if one of you wishes to keep the property that is a little more complex and takes a little more explaining. So let’s dive in!..
Costings & Strategy
In order to do this, we need to gather a few bits of informaiton to help us determine the costings and strategy. You will first need to get a valuation on your property and the get a redemption figure from your existing lender. This will help you establish what equity you have in the property and if you are going to remortgage you know what figure you need to borrow above to release that equity. Once you have found these figures it may become apparent that only one of you can afford to take over the mortgage alone based on your income, or you could afford it alone but wouldn’t have much money left over for anythgin else and you don’t want to put yourself in that position.
Most couples we speak to calculate the pay out in a one of two ways. They either return the deposit that the other person put in to buy the property in the 1st place, and a 50% split of the equity they have built. Afterall, they have contributed to the mortgage payments over that time and experienced the capital growth of the property at the same time as you. For example:
If they put a £10,000 deposit into the property, and the property has increased in value by £50,000 – 50% of that is £25,000. Add to that the initial £10,000 deposit you would buy out your partner for £35,000 in total.
However, not every case is made equal. In some cases one partner may have put a larger deposit down than the other, or may not have put a deposit in at all. The other way we see partners buy the other out is by deciding on a figure together. This figure may come from a figure that the partner moving out of the property needs to start again ie to form a deposit on a new place of their own. It may even be that the partner wanting to remortgage to buy the other partner out may only be able to achieve a mortgage to a certain value based on their income and outgoings. Once you have deducted the existing lenders redemption figure their may only be a set figure left over – the maximum they can afford.
Remortgage
Remortgaging and buying out your partner provide many benefits, not only do they receive the money they need to complete the split but you will also remove them from the legal deeds which legally removes them from the mortgage deed and land registry. In doing this they will also sign what they call a transfer of equity, which means that they sign a document to say that as a result of this remortgage and buy out they surrender their rights to the property and will not challenge you in the future. This means that they cannot come back to you in the future for any further money and the property is now solely in your name.
You now know your redemption figure from your current lender (this is your remaining balance plus any fees for leaving) and you now know the figure you need to raise to buy out your partner. To remortgage you simply need to find a new lender for the redemption figure plus the buy out figure. For example, your redemption figure is £200,000 and the buyout figure is £35,000 means you need to remortgage for £235,000 to buy out your partner.
However, you work out the buyout figure or who is buying who out, that is for you to decide. Your adviser can work around that figure, but it is not their responsibility to work this out for you. We have used examples above from our previous clients to give you an idea to help you if you unfortunately find yourself in this situation. But please don’t ask us to act as a relationship referee as well as your mortgage adviser!
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