When it comes to owning a property, things can sometimes get complicated, especially when it comes to mortgages.
One of the most common complications is when there is more than one person on the mortgage, and one of them wants to remove themselves or add someone else.
In situations like this, it’s important to understand the process of transferring a joint mortgage to one person, also known as a transfer of equity.
In this article, we’ll explore what a joint mortgage is, the reasons for transferring a joint mortgage to one person, the process of transferring a joint mortgage, and what to consider before proceeding with a transfer of equity.
What is a joint mortgage?
A joint mortgage is when two or more individuals take out a mortgage together to purchase a property. All parties listed on the mortgage are equally responsible for making the mortgage payments and are jointly liable for the debt. This means that if one person stops making payments, the other person(s) listed on the mortgage will be responsible for making up the difference. It also means that if the mortgage goes into default, the lender can pursue any of the parties listed on the mortgage for the outstanding debt.
In the UK, it’s common for couples, friends, or family members to take out a joint mortgage together. However, it’s important to keep in mind that taking on a joint mortgage is a significant financial commitment, and it’s important to trust and have a good understanding of the financial situation of the other person(s) listed on the mortgage before proceeding.
Reasons for transferring a joint mortgage to one person
There can be several reasons why someone would want to transfer a joint mortgage to one person.
For example, in the event of a separation or divorce, one partner may want to buy out the other’s share of the property. Another scenario could be when a family member wants to add or remove another family member from the mortgage. In some cases, transferring a joint mortgage can also help with affordability and credit issues.
How a transfer of equity remortgage works
When a transfer of equity is needed, it often also requires a remortgage. This is because the lender will need to approve the change in ownership and will conduct a new affordability and credit check on the new borrower(s) before giving the green light.
A remortgage is the process of switching your mortgage to a new lender. This can be done to take advantage of better interest rates, to access equity in the property, or in this case, to complete a transfer of equity.
A transfer of equity remortgage works as follows:
- The person staying will need to apply for a mortgage with the new lender
- The lender will conduct an affordability and credit check to ensure they are capable of meeting the mortgage repayments.
- Once the lender has approved the remortgage this can be used to payoff the existing loan
- If extra money has been borrowed to fund the buyout then this will be sent to the person leaving
- The solicitor will update the title deeds of the property to reflect the change in ownership.
It’s important to note that remortgaging can have its own set of costs such as legal fees, valuation fees, and early repayment charges on the existing mortgage. Take these costs into account when deciding whether to remortgage or not.
It’s also worth mentioning that if the mortgage has a low interest rate and the borrower(s) are happy with the current lender and the terms of the mortgage, it’s not always necessary to remortgage. It’s always advisable to do a cost-benefit analysis and compare the cost of remortgaging versus the cost of staying with the current lender before making a decision.
A guide to mortgages and divorce – This guide is designed to help you understand mortgages and divorce, and to give you the information and guidance you need to make the best decisions for your situation.
Mortgage capacity report explained – A Mortgage Capacity Report, or Mortgage Capacity Assessment, outlines the amount and type of mortgage you might be eligible for after a divorce or separation. It is an in-depth report that will be based on your specific and individual circumstances.
When it comes to transferring a joint mortgage to one person, it’s important to keep in mind that the new borrower will need to qualify for the mortgage. This means that the lender will conduct an affordability and credit check and assess their income. As the mortgage is moving from two incomes down to one, the lender must be certain that it is affordable.
This process is different from a mortgage product transfer, which is when a borrower stays with the same lender but switches to a different mortgage product. In this case, the lender will not conduct an affordability and credit check, as they are already a customer of the lender.
It’s possible that even with a good credit history and income, the new mortgage application could be declined or you could be offered a lower mortgage amount.
How do you buy someone out?
Buying someone out of a joint mortgage means purchasing the portion of the property that is owned by the other person listed on the mortgage. This process is also known as a transfer of equity.
The process of buying out a partner typically involves paying the other person the value of their share of the property, and then changing the title deeds to reflect the change in ownership.
When you change who owns a property you also need to change who is on the mortgage.
You first need to establish the equity in your property, this is the part that you own outright. Deduct the mortgage balance from the value of your home to find out the equity.
For most people their property will be owned 50/50 with the other person. In these cases divide the equity in half and this is the amount of money you will need to give the other person. You can give this to them from your savings or it may be possible to apply for a higher mortgage and borrow it.
Where to go for advice
The breadth of advice that you may need will depend on your circumstances.
In situations of separation or divorce, the financial side of dealing with your home can often be the source of many frustrating issues and disagreements.
Unless you can both come to a mutual agreement, and are keen to proceed, it is likely you will need to seek advice regarding this aspect of the separation.
For general help and guidance you may want to start with Citizens Advice.
When it comes to the legal side of separating you should engage the services of a Solicitor who is experienced in your type of situation.
As for the mortgage, we would always recommend speaking to an independent mortgage broker who is experienced in divorces and separations. Your broker will help you to see what mortgage is affordable and find the lenders that will be able to help.
They’ll also confirm whether you can borrow any extra money to pay for the buy out.
And once you decide to apply for a new mortgage, they will be there to help you and deal with any issues that may crop up.
To speak with one of our advisers, please call us on 020 8301 7930.
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