How to Calculate Buying Someone Out of a House
- You'll need a property valuation and a mortgage redemption certificate (if you have a mortgage).
- Your conveyancing solicitor from the purchase will be able to tell you how the equity is split unless you have a subsequent deed which alters the shares.
- The main complications come from disputes over how to split the equity.
You may need to buy someone out of a house because your relationship has broken down, one party wants to move on, or you've each inherited a share in a property. For example:
- You and your sibling inherit a house and you move into the house, paying your sibling for their share.
- You and three friends bought an investment flat after university, now one of them is settling down and wants to get their money out to put toward the deposit on their family home; the three of you club together to buy out their share.
- You and your partner have split up, you agree that you will keep the house and buy them out so they can move on.
The buyout process in each of these scenarios is much the same, but the way to calculate your equity depends on a few factors. We'll explain below.
How much equity do I have in my home?
The total equity is the current market value minus any outstanding mortgage. It can become more complicated if you disagree on how to split the equity between yourself and your co-owner.
It is fairly straightforward if you are joint tenants and agree on splitting everything equally, down the middle, or if you hold unequal shares which are protected by a properly executed deed of trust.
Get a property valuation | i.e. £500,000 |
Calculate the total cost of the salei.e. paying the remaining mortgage balance or the estate agent's fees. | i.e. £350,000 |
Property Valuation minus Sale Costs = Net Equity | i.e. £500,000 - £350,000 = £150,000 This is the total equity |
Net Equity multiplied by zero-point-your percentage of the beneficial interest = your share of the total equity | i.e. £150,000 x 0.5 = £75,000 This is your share of the equity based on a 50% share |
Home buyout calculator
If you are not legally married or civil partners (including in a divorce or dissolution), you will need to pay stamp duty at the prevailing rate if the share exceeds the current threshold - Calculate your SDLT
The calculation itself is easy, but agreeing on what that percentage of ownership should be can be challenging.
As joint tenants, you'll own equal shares, and as Tenants in common, your shares should be set out in your title deeds or a more recently executed deed.
Issues can arise where the beneficial interest has not been protected with a legally drafted deed, particularly where a relationship has broken down, parties have become bitter, and what seemed 'fair' when things were going well doesn't seem fair any more.
Book a FREE 15-minute meeting* with a property dispute specialist who will listen to your issue and suggest ways forward, including the costs, with no obligation to use our services after the free meeting.
- What are you due on sale?
- How to sell where one person doesn't want to.
- Mediation and Settlement Agreements.
- Applications to court, including Declaratory Orders, Regulatory Orders, Occupational Rent.
Who gets the house in a divorce?
It depends. In divorce, the family courts can settle the division of the house. They must consider several factors and make a decision which is fair to both parties and ensures everyone's needs are met as best as possible.
They can order a buyout or sale, or they can defer the disposal of the property with a Mesher Order, until the youngest child reaches 18, for example. We discuss 'fair' divorce settlements in our FAQs.
Buying out a partner? What if you can't afford to?
Most people who jointly own property don't have the cash to buy out the other party's share. The last resort would be to sell the house and split the proceeds.
This can be the 'cleanest' solution if you don't have any sentimental attachment to the property. However, there are a few other options to exhaust first if you can't afford to buy out your co-owner:
- Remortgage alone - If you have a large enough income to become solely responsible for the outstanding mortgage and borrow the rest of the funds you need to buy out the other owner's share of the house, you may be able to remortgage the property in your own name.
- Continue to co-own - If your split is amicable and the other party doesn't need to get their money out immediately, you could continue to co-own but not cohabit. You could pay the other owner rent on their share, although most often on mortgaged property, the rent offsets the mortgage payments, as they would continue to be liable, even if they don't live in the house any more.
- Buy out by a third party - A third party could buy out the existing owner's share and you can remortgage together.
- Bring a third party onto the mortgage - If you can find a third party who is willing to take on the liability of the mortgage without the benefit of being a legal owner, you can remortgage with a Joint borrower sole proprietor mortgage, where the third party becomes liable for the mortgage and their income is added to yours when the lender decides how much they are willing to lend; this can enable you to afford to keep the property. See also: Guarantor Mortgages.
- Equity release - If you are nearing retirement, you probably won't be able to borrow much more with a standard mortgage, as you won't be working for long enough to pay it off. You may be able to release all or some of your share of the equity to buy out your co-owner's share in the property. The equity you release now, plus interest, is repaid from the sale of the property when you die or move into long-term care. Be very careful when choosing an equity release product, as they can mean there is nothing left of your estate for your loved ones to inherit.
What is a mortgage buyout?
Buying someone out of a mortgage is the most typical route; you buy out their share of the equity and remortgage to buy someone out of a house, putting all of the debt in your own name:
Calculating the cost of a mortgage buyout
On top of the amount you'll be paying for the equity using the calculations above, you'll need to pay for the property valuation. We offer valuations from our nationwide panel of RICS accredited surveyors, from just £360 INC VAT.
You may have to pay early repayment charges to your mortgage lender, which will be outlined in your mortgage redemption certificate, it is typically between 1% and 5% of the remaining debt.
You'll also have to pay SDLT on the transfer if you're not married or civil partners (you don't have to pay if the buyout is part of a divorce or dissolution) and the value of the share being bought out exceeds the current threshold. Use our Stamp Duty Calculator to work out your tax liability.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
