Buying someone out

[Foxblue]

Hi lovely people.
Got a potentially very stupid Q about buying someone out of a house - don't need to take marriage/kids/any other finances into account.
Have fluffed the numbers slightly for anonymity so if they don't add up that's why.

Property bought jointly in Jan 2021.
Deposit of 10%, (24k) contributed equally.
House worth 200k.
Mortgage 600 a month initially on fixed 2 year rate, renewed, now 700 a month since Jan 2023. Paid equally 50/50.
House is (for example) now worth roughly 240k by today's market.

If one person wanted to buy the other out - how does it work?

Q: Do they need to pay the other person:

• Their half of the deposit PLUS
• Their half of what they've paid in PLUS
• Half the equity (so in the example above 20k)

And if so - where does this money come from - do you have to try and persuade the bank to lend you additional £££ on top of the 240k mortgage you'd need to then try and obtain as a single person?

Massive thanks in advance!

There’s no “have to” about it

it is how best you both agree with or without solicitors

and whomever is the one buying…. Must be able to take on the mortgage by themselves in the eyes of the bank

As you’ve both contributed equally, you need to pay half of the current value of the house.

As you have both contributed equally in deposit, monthly payments etc. to be fair I would think you need to pay half the equity in the house to the other party.

How you do that would be up to your personal finances.

So if house is valued at £240k and outstanding mortgage is for simplicity £176. That means current equity is £64k. So to buy out yiu would need to pay £32k. Meaning increasing your personal mortgage to £208 unless you can fund that from other sources.

How much is left on the mortgage?
Guess 170k.

So, if you sold the house and both walked away, you would each get 35k (sell 240, minus paying off the mortgage, spilt evenly).
So, if you want to split evenly, you should give the person moving out the 35k. Well, a bit less, because there are selling costs, and the numbers are fudged anyway. But that's a starting point for the sums, imo.

If the deeds are 50-50 split then it is my understanding each is entitled to 50% of the equity of the house. Which is calculated as what the house is currently worth - what's left on the mortgage = equity.

However as PP said, it's an agreement between each involved.

Interesting - so there's no actual - this how you do it, legally?
And you don't have to pay the other person equity PLUS what they've put in?
Presumably people generally just go with whichever is the higher amount - equity or whatever been paid in

Just equity would be reasonable, property can go down in value and well as up, so if the property was now worth 180 instead of 240, you would have lost 20k regardless of how much either had paid initially or ongoing. Would you still feel happy about paying anything other than the half of the 4k equity that you had in the property

Don't know anyone who has paid what has been put in. Thats bizarre I feel. If it's a straight 50:50 then 50%of the equity minus any costs. If the value has gone down and the property is now in negative equity then that's tough really.

Okay, I get it now. So in order to give the other person their equity, unless you can get it from other means, you need to get approved for a mortgage at the new value, PLUS the equity. So in the example, using the estimates above, that would be wanting to borrow 240 + 35 = 275?

No your new mortgage would be the 176 plus 32 as you also have 32k equity

You just discuss what you both think is fair, and agree it with solicitors. I bought an ex partner out (who had shafted me) and I followed the advice of my solicitor at the time who said ‘do you want rid of this guy quickly?’ and I did, so made him a decent offer. Later I wished I had fought for more for myself as he was an arse to me, but maybe the solicitor had seen so much quibbling over a few grand that he knew it was less painful to get it over with.

But how do I then have the cash to pay the other person out? Sorry, I'm being daft - heads a mess.

For what it's worth, when nowEX- DP and I bought together, we were not married. We wrote a spreadsheet which set out what we had each contributed as deposit and as payments and what we would do if either of us wanted to sell.

We agreed that

• the actual deposit each had contributed would be returned.
• costs would be shared in ration of our earnings.
• when sold, deposits would be returned, mortgage redeemed and any profit of loss shared in proportion

We agree, which was to be returned and the proportion of the costs we had each covered.

There was no question of returning contributions which would count as cost of living there / rent sunk cost.

In your case, given everything is 50:50, fair would be 50% equity (after costs of changing ownership and redeeming the existing mortgage)
MHTH

But how do I then have the cash to pay the other person out?

Contact your exiting mortgage provider and / or some brokers to see what mortgage you could secure

If this is enough to buy out the other 50% you are ok. Good luck.

So just to keep it simple.

Property is worth 240k, current joint mortgage of 176k. If you wanted to buy them out assuming you want to split it down the middle you would need to borrow £176k plus the amount you are paying them off so let's say you are giving them £30k you would need to borrow £206k. That would pay off your existing joint mortgage and then leave you cash to repay partner.

You wouldn't borrow £275k to purchase a £240k house.

Thank you so much, I get it now! Thanks for your help,all!

In effect if you've paid in equally then half the equity IS what they've paid in. Obviously there's likely to have been interest paid as part of the mortgage payments but that's irrelevant.

Don't do it on amount paid in - a load of that disappears in interest - taking it to an extreme, I calculated that at 5% interest - as things were when I first took out a mortgage - over 25 years you would pay back approximately twice what you borrowed.
So, on your "payback what you put in" if you split near the end of the term you would have paid most of the mortgage - and then be paying your ex all the equity for you to start again.

I know this is an old thread but thought I would jump on here on the off chance.

For those with experience of being bought out by an ex partner (unmarried), how much were your solicitor costs as the person being bought out? I know you don’t need to have one if you are being bought out, but for those of you that did, would love a rough estimate of costs (especially if in south east England. Thanks in advance !