Key Post Splitting up joint ownership where both owners are co-operating

Brendan Burgess

This comes up a lot and the Key Posts are old and tend to involve negative equity.

Summary of the process by way of example
John and Mary own a house jointly but have split up. John is happy to transfer his share of the house to Mary.

House value: €300k
Mortgage: €260k so 87% Loan to Value

Although there is €40k equity in the house, John does not want his share which would be €20k.

1) Mary applies to the lender or any lender for a new mortgage of €280k in her own name.
2) John's solicitor will draw up the sale of the property to Mary.
3) Mary's solicitor and it has to be a separate one will process the purchase like any other house purchase.

John can't "just take his name off the mortgage" or "just take his name off the title deeds"

It is very important that Mary tries to buy John out formally and legally so that he has no further claim. They should not just reach an informal understanding that "she will pay the mortgage and own the house."

John must transfer ownership to Mary if possible. They could fall out later and he could claim that he still owns the house. He might not succeed, but Mary would have great difficulty and expense if she ever wanted to sell the house.

Likewise John does not want to be on the mortgage for two reasons:
  1. Other lenders will see it as his liability and it will limit his ability to take out a mortgage himself if he wants to buy a house
  2. If Mary goes into arrears, John's credit record will be damaged.

Brendan Burgess

This is a complex topic, so this particular thread is focussed on co-operating owners.

Here are some threads dealing with disputes and other matters of interest.

Sara - Ex refuses to pay, and now after four years, wants to move back in

Arches 1 - Case study: Ex paying nothing, €60k of negative equity

Mulc - Jointly owned with my sister, I want to sell, she refuses

Jules 30 - ex husband refuses to pay mortgage

Dee 1 -(6/6/2012) ex thinking of going bankrupt. Where does that leave me?

Any replies along the lines of "how do I force my ex off the title deeds?" will be deleted.
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Brendan Burgess

If Mary does not have enough income for a mortgage of €280k
If Mary can't get a mortgage for the full amount, then she can't buy the property on her own.
She can ask the existing lender if they will lend her the money, but they will probably refuse.

They won't "just let John take his name off the mortgage."

The bank has security that if Mary does not make her repayments, they can come after John.

While they are joint mortgage holders, John and Mary are "jointly and severally" liable for the full mortgage.

In other words, if Mary does not pay, they can go after John for the full amount, and not just half the amount.

Possible solutions

If the bank will give Mary a maximum mortgage of €200k which would leave her €60k short, could Mary get a loan from a family member to bridge the gap? That would be the simplest solution.

If Mary can't get a mortgage on her own income, could a relative or friend become a joint mortgage holder with her?
This is a bit messy, but it might be worth it to make a clean break with John. Of course, this other person will now have a mortgage so this would limit their ability to get a mortgage later to buy their own home. Their name would not be just on the mortgage, they would also jointly own the home.

Brendan Burgess

If Mary can't buy the house on her own, she could enter into a side agreement with John.

She agrees to pay the mortgage. He renounces his interest in the property.

This is fine for Mary, but has huge disadvantages for John

  1. It does not change his liability to the lender for the mortgage so if Mary does not pay, he still owes the money
  2. If Mary does not pay, his credit record will be wrecked
  3. If he needs a mortgage to buy a house for himself, the existence of this mortgage will limit his borrowing capacity.
More information here:

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Brendan Burgess

John could retain joint ownership of the house until Mary is in a position to buy him out

This could be appropriate in the following circumstances:
  1. Mary can't afford to buy John out at present, but may be able to do so in the future.
  2. John wants to retain a stake in the property market
  3. They have children together and John is happy to leave them in the family home.

They must put their agreement in writing and get a solicitor to advise them on it.

For example, they could agree something like the following:

The rent on the property would be about €15k a year.
Her repayments are €17,000 year.
So although her repayments include capital, she is getting the full rental value of the house.

When she is in a position to buy the house, they get it valued by an independent valuer, and she pays him his share of the equity in the house.

For example, say she buys him out after 5 years :
House is worth €320k
Mortgage is €240k
Total equity: €80k
His share : €40k

If she still cannot buy him out after 5 years, then she agrees to sell the property.

This is just one example of what a fair agreement might be. They can agree anything they like.

Brendan Burgess

Arriving at a fair price for Mary to pay John to buy out his share

In the above example, John was happy to forgo his share of the equity in the house.

But what if the figures were as follows:
Property value: €300k
Mortgage: €200k

John wants his share of the equity which is €50k.
Mary will need a mortgage of €250k to buy him out and refinance the existing mortgage.

The starting point for arriving at a value for John's share is to split the equity in two - but many other factors affect that.

1) Mary might argue that she contributed all the deposit
2) John might argue that he made all the mortgage repayments
3) Mary might argue that John left the home three years ago when the house was in negative equity and left her to meet the full mortgage payments on her own and now the house has come into positive equity, he wants his share.

Brendan Burgess

If the existing mortgage is a tracker mortgage

The repayments on a €260k tracker mortgage at 1% with 15 years left are €1,600 a month.
The repayments on a €230k mortgage at 2.5% with 15 years to go are also €1,600 a month.

This makes the tracker mortgage "worth" about €30k.

It's worth trying to keep it, if at all possible. But trackers are no longer as valuable as they once were. And as the number of years to the end of the term reduces, then the tracker becomes less and less valuable.

But if John is not buying another home for himself in the next few years, it's worth asking the lender if they will issue a new mortgage at the tracker rate. They might. If they insist on replacing it with a fresh mortgage at market rates, then they are giving up about €30k. John might decide to do a side agreement, so that she retains the mortgage.

Brendan Burgess

Splitting up in negative equity

With the increase in house prices, this is becoming less common, but it might become relevant again.

House Value : €300k
Mortgage: €360k

In theory, John should pay €30k to Mary as his share of the negative equity.

In practice, it's quite likely that Mary will be happy to own the house and be rid of John.

There is an old Key Post on the topic.