Property and Mortgages During a Separation: A Step-by-Step Guide

Separation is never easy, and when a property and mortgage are involved, things can get particularly complex. Whether you’re selling your home outright or one of you wants to ‘buy out’ the other, it’s essential to understand the process—and more importantly, to make decisions with your long-term financial health in mind.

At Coreco, we often help clients through these challenging times, so it is one less stress to worry about. Here we look in more detail at both of these scenarios to help guide you forward in a clear and transparent way.

Scenario 1: Selling the Property Outright

This is often the cleanest solution in a separation, especially if neither party can afford to keep the home. By selling the property, you can both move on with a fresh start. Here’s how it works:

1. Agree to Sell the Property
   First, both parties must agree to sell the home. Sometimes this is straightforward, but in other cases, emotions run high, and it can take time to come to terms with the decision. It’s crucial that both of you are on the same page, as delays or disputes can make the process harder and more expensive.
2. Value the Property
   The next step is getting a proper valuation. You can ask local estate agents to provide this, or you might prefer a professional surveyor for a more formal valuation, particularly if the sale is part of legal proceedings.
3. Settle the Mortgage
   When you sell, your mortgage will need to be paid off. The proceeds from the sale will go towards settling any outstanding amount on the mortgage. If you’re in a fixed-term mortgage, be mindful of potential early repayment charges. This is something you should factor in when calculating how much you’ll walk away with.
4. Divide the Remaining Equity
   Once the mortgage is settled, the remaining equity (if any) is divided between you and your ex-partner. This is usually agreed in advance, either amicably or through solicitors, depending on your relationship and any legal agreements in place. The split may not always be 50/50—it often depends on financial contributions or court agreements.
5. Fees and Costs
   Don’t forget about additional fees, including estate agent fees, legal costs, and any exit fees for closing your mortgage early. These will all come out of the sale proceeds before the final amount is distributed.
6. What Next?
   Once the property is sold and the mortgage settled, you’re free to go your separate ways. If you’re planning to buy a new home or need help arranging a rental agreement, this is the time to sit down with a mortgage adviser to explore your options moving forward.

Scenario 2: One Party Buying Out the Other

In some cases, one partner may want to stay in the property, buying out the other party’s share. While this can offer continuity—especially if children are involved—it can also be a more complicated process.

1. Agree on the Buyout Terms
   The first step is for both parties to agree on the buyout amount. This will usually be based on the current market value of the home. Let’s say the property is worth £400,000, and there’s £200,000 left on the mortgage. The equity in the property is £200,000, so if you’re splitting things equally, one partner would need to raise £100,000 to buy out the other.
2. Check Affordability
   Before moving forward, the person staying in the home needs to assess whether they can afford the existing mortgage on their own, plus raise the additional funds to buy out the ex-partner. If more borrowing is required, a lender will conduct affordability checks based on the individual’s income, debts, and credit score.

This is a critical step. Even if you’re emotionally attached to the property, it’s vital to ensure that taking on the full financial responsibility won’t overburden you in the long run. If you can’t afford the mortgage alone, it may be better to sell the property and start fresh.

It may be the case that the partner leaving the property will still contribute in the form of maintenance payments, which can be taken into account by a lender when they look at affordability. These payments could be agreed voluntarily between you or via a Court Order, but they can make all the difference especially when wanting to keep children in the family home.

1. Remortgaging
   In most buyout situations, the person staying in the home will need to remortgage. This serves two purposes: to get a new mortgage in their sole name and to raise the funds to pay off the other partner. Essentially, you’re refinancing to reflect the new ownership structure.

It’s important to work closely with a mortgage adviser at this stage to find a deal that’s affordable and works for your long-term financial plans. Keep in mind any penalties for breaking out of a current fixed-rate mortgage early, as these costs can add up.

1. Legal Transfer of Ownership
   Once you’ve secured the mortgage and agreed on the buyout, a solicitor will need to handle the legal side of things, transferring ownership from joint names to a single name. This process is known as a transfer of equity.
2. Stamp Duty
   Depending on the value of the buyout, Stamp Duty Land Tax (SDLT) may apply. If the amount you’re paying to buy out your ex-partner exceeds the SDLT threshold, you’ll need to factor this into your costs. It’s something that can be easily overlooked but can add a significant amount to your outgoings, so be sure to check this with your solicitor.
3. Completion
   Once the mortgage is in place, funds are transferred, and ownership is updated, the process is complete. The remaining party now owns the property outright (with the new mortgage), and the other receives their agreed share, allowing them to move on.

Key Considerations for Both Scenarios

• Emotional vs Financial Decisions: It’s easy to let emotions drive your decisions during a separation, but it’s crucial to take a step back and think about what’s financially sustainable for the long term. Owning a property alone is a big commitment, so make sure it’s the right one.
• Consult the Experts: Whether you’re selling or buying out, always get professional advice. Solicitors, financial advisers, and mortgage brokers can help ensure the process is smooth and that you’re not missing any important details that could come back to bite you.
• Costs: From legal fees to Stamp Duty to early repayment charges, there are a lot of potential costs to consider. Make sure you’ve factored all of these into your decision-making process.

Separation is undoubtedly tough, and when property and mortgages come into play, things can get complicated fast. Whether you’re selling up and dividing the equity or trying to stay in the home by buying out your ex-partner, the decisions you make now can have long-lasting financial implications.

At Coreco, we’ve seen it all, and we’re here to help you. We’ll work with you to find the best mortgage solution for your situation, helping you get through this difficult time and look forward to a more secure financial future.

If you need help or have questions about your mortgage during a separation, don’t hesitate to get in touch. We’re here for you, every step of the way.

Your home may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.