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Tackling your shared mortgage as a separated couple

27th February 2019

If you and your partner are considering whether or not to apply for a joint mortgage, there are a few factors to consider before you do so. There are also four main ways to approach the mortgage moving forward, should you decide to separate or divorce. This article is written for couples who have a shared mortgage in which both people are named owners of the property. This means that whatever decision is made this needs to be agreed by each person.

What happens to a joint mortgage when you split up

Sell up and move out

The first option, which may not be the most profitable option but is often the easiest and most practical, is to sell the property. While this frees both of you from the mortgage, whether or not it is cost effective depends on the conditions of the current property market.

No matter what mortgage agreement you opted for, it needs to be paid off before the title can be transferred to a new owner. And it is common for a property to be sold with a mortgage (because mortgage terms can be from 10 to 30 years). In this scenario, a home seller determines the amount of the remaining mortgage before listing the property.

When a buyer completes on the property, you can use the sale funds to pay off your mortgage plus any fees required so that the title can be transferred to the new owner. In an ideal world, the property will sell with enough money to pay off the mortgage and still have sufficient money to use for a deposit on a new home. But if the home sells for less than the money owed on your mortgage, you still need to pay off your mortgage balance and so you will technically be out of pocket following your original purchase of the property.

Buy the remaining half of the mortgage

If one of you is in a position to do so, you can buy the other person out of the mortgage. In other words, transfer all of the responsibility and ownership to one of you, making your joint mortgage a normal, individual mortgage. If you want to take over the mortgage in your name alone, under Financial Conduct Authority (FCA) rules, your lender will need to ensure that you can afford the payments through in-depth questions and further financial checks similar to those carried out when you first applied.

Whether this is possible depends on the couple’s financial circumstances. But the advantages of doing so are:

  • The person who stays in the house doesn’t rely on their ex-partner for part of their mortgage payments.
  • The partner whose name is taken off the mortgage may now be able to borrow more to buy themselves a new home. If their name was still on this mortgage, this would impact how lenders evaluate their risk as a borrower.
  • Your credit files are no longer linked. If you have a joint debt with your ex-partner (such as a mortgage or a loan), your credit files are connected. This means that how each person manages their debts, will affect future credit applications of both of them.

Keep the mortgage but change your living situation

You may wish to keep the mortgage and the property but no longer live together. For example, if your family are settled in the property and you have children under the age of eighteen. This isn’t always feasible for financial reasons. Sometimes downsizing is necessary for both members of the couple, hence they may need to sell up and apply for two separate new mortgages, on smaller properties. Particularly because your family home is likely to be larger and worth more than two smaller houses.

What can I do if I can’t afford the mortgage but need the house?

If you can’t afford the mortgage on your own, you might be able to get a ‘guarantor mortgage’. This is a mortgage where the guarantor (usually a close relative) agrees to guarantee the mortgage payments if you can’t. They are then responsible for paying the whole mortgage if the mortgage borrower cannot. It’s a significant responsibility and legal step so make sure whoever acts as your guarantor seeks independent legal advice and talks to a mortgage broker before agreeing to anything.

Change how you share the mortgage unofficially

This option is ‘in between’ the previous two if you would like your children, or partner, to remain at the property but they cannot afford to buy you out (and you cannot afford to gift your share to them). You may not be able to obtain an updated mortgage on these terms through a lender, so this would require drawing up your own contract with witnesses – you may not be confident or comfortable entering into an agreement like this.

Transfer part but not the total value of the property from one partner to the other. This way you both have a stake or ‘interest’ in the home so that when it’s sold you will both benefit. But neither of you will be taking on the entire mortgage alone. Most importantly this option requires that the couple are on good terms and are able to draw up their own unofficial agreement.

Who continues to live in the property?

Couples with children

We’ve already mentioned how the above options may apply when children are involved. In terms of living at the property, one parent might be able to make a legal claim against the other for the right to remain in the family home with your children. However, this is a separate issue to owning the property. It is for the two of you (with or without legal input) to determine, when you decide what to do with your mortgage moving forward. One partner may be given the right to live there for a number of years, usually until the youngest child reaches a certain age. We recommend seeking legal advice on this prior to separation. For the benefit of you and parents and your children, it is advised to have a legal agreement in writing detailing what will happen to your property should you decide to separate so that both parties have to honour it.

Unmarried versus married couples

All of the above applies to you if you took out a shared mortgage with your partner in which you were a named owner and towards which you paid your contribution of the monthly mortgage payments. If the home is in your ex-partner’s name only, officially you don’t currently have a right to any of the property but you might still be able to make a claim for a share of its value.

If you were not named on the mortgage but you are legally married to your partner, your rights to a share in the property’s value are increased. There’s a popular myth that when you live with your partner for a long time, you’re in a ‘common law marriage’. But the truth is that in England & Wales there’s no such thing as a common law marriage. However, if you are splitting up from your partner, but aren’t married or in a civil partnership, there may be steps you can take to protect your home rights.

 

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