What is a “buy out”?

A mortgage buy out is one solution if you and your partner separate but still have mortgage obligations and one partner wants to keep the house. A buy out involves one partner purchasing the equity interest of the other. It can be done relatively easily in New Zealand with a separation agreement.

Read on to find out everything you need to know about mortgage buy outs. If you still have a question, feel free to get in touch with Agreeable’s team and we will be happy to help!

Need a Separation Agreement? Click here to learn more about Agreeable’s online service.

 

Steps to buying your partner out

To buy someone out of a house, you need to be able to take on the whole mortgage yourself, and have enough to pay your partner for their share of the equity in the property. Here are some steps that we recommend taking:

  1. You’ve already made a great start by reading this article. For more general information on separation, we also recommend MoneyHub NZ’s guide here.
  2. Get a valuation on the family home or properties to be divided. You can simply agree on the value and use this as the basis of your agreement, but a valuation is best if there is any doubt, or just to be sure.
  3. Agree on your partner’s “buy out price”. Typically, this is the equity that you hold in the home (home value less the mortgage balance) divided by two. However, some Kiwis like to adjust this figure based on the parties’ contributions to the deposit or mortgage payments. There isn’t necessarily a right answer, as long as it is fair and you both agree.
  4. Get a separation agreement built & certified with Agreeable. Most banks require a separation agreement to change the mortgage over. Agreeable is New Zealand’s fastest, easiest, and most cost-effective way to build an agreement, and we also connect you to two lawyers (one each) for the online advice & certification. We provide it all at a fixed cost, and online, so you don’t have to leave home! Kiwis usually save over $1,000 by certifying with Agreeable, compared to the “traditional” way.
  5. Settle your new mortgage (if necessary).


 

Download our free guide to Separation Agreements

The first question to ask:

The first question you should ask yourself is if you are financially in a position to afford the mortgage payments. Secondly, will the bank agree to you being the sole mortgagee?

Note that when you separate, you are (usually) splitting half the proceeds from whatever you both sell – including the Family Home. You are left with half (or thereabouts) and must start a new life on this amount. Think carefully before committing to selling the Family Home. It may be a better financial decision to buy out your partner – or not depending on your own financial situation.

Is your partner buying out your share?

If your spouse wants to keep the home, make sure you obtain an appraisal if you cannot agree on the value of the Family Home. Also, you may have to adjust to the fact that it is no longer your home and this may mean unfamiliar people living in it.

Your obligations to the bank

If you are the party being released from your mortgagee obligations, ask for the bank’s proof that they have discharged you from your obligations i.e. check you are no longer on the mortgage.

This may need to be done after you have obtained a Separation Agreement, as some banks request to see this for obvious reasons before they take one partner’s name off the mortgage.

What are your other options if you cannot afford the mortgage yourself?

If your mortgage payments are almost paid off and you and your partner are on amicable terms, then you could agree to continue to pay the mortgage until it ends.

This is ideal and possibly not the option many can take. In this situation, it may still be untenable for your partner to stay living in the house while you both pay off the mortgage. In this case, the partner who is having their share bought out, will have to negotiate rent.

Can you substitute someone else on the mortgage?

It will be hard to sell the Family Home with negative equity. Unless you are able to negotiate other terms with your mortgage provider then you will both continue to be liable for the mortgage repayments. Potentially you could substitute your spouse for other family members or friends who are interested or able to support you in the mortgage if you decide to keep the house. If you decide to go with this option, it is a good idea first to have already brought-out your spouse.

Buy Out Divorce Separation 
The Family Home is relationship property, and after separating, you may be thinking about buying out your partner’s share to keep it.

What will the buy out price be?

A buy out means you must identify the equity in the property – the difference between the mortgage balance and what the property is currently
worth.

It’s not always going to be an equal split when you separate from your partner – you can decide what the most fair buy out price is, as long as you both agree. This may be the case if one partner’s family helped to improve the value of your home by providing money for renovations, or perhaps one of you contributed more to the deposit of the home.

How do you calculate the buy out price?

But assuming that you both contributed equally to both the deposit on the home, and the recurring mortgage payments, this will be a simple calculation.

To clarify, you take the current value of the property (note that you may both want to get property valuers to obtain an accurate market value of the property), subtract the amount outstanding on the mortgage, and any other payments which were not contributions equally by you both, and then divide the remaining amount by two.

Example of buy out calculations

So, for example, if the property is now worth $500,000 and there is, say, $250,000 left to pay on the mortgage, you would need to find $125,000 to buy out your ex-partner’s share of the property.

If, for example, the property is worth $500,000 but $100,000 was provided as a loan by your parents to renovate the house or for the deposit, you will need to pay this back first. Say you have no mortgage on the house and you were to divide the sale of proceeds. This means you and your partner will be splitting $400,000 instead of $500,000.

However, if you were to buy out your partner’s share, and there is still $250,000 left to pay on the mortgage, you will need to pay out the $100,000 first. Assuming the loan was a gift from your parents, this means that you will need $75,000 to buy out your partner.

How to get a valuation on your Family Home or other properties

The buy out price above depends on the value of the home if you are keeping the Family Home. Note that your bank may also want you to get a valuation from a registered property valuer before they refinance the mortgage to you.

Valuation

It is important to get a valuation from a certified registered valuer.  This will determine the market worth of a house or property.

A registered property valuer combines all their knowledge and experience with their observations and research undertaken of the property and its surrounding area, and determines the market value.

A property valuation costs approximately $500 – $800 plus GST. However, a valuation does have a limitation period. This means it will remain “current” only for a limited time, typically three-to-six months. Your ex-partner may agree to split the cost of the valuation.

Certificate of Title

Firstly, it is important to get a copy of the Certificate of Title of your property to check whether your name is on it. Importantly, you will need to get your partner’s name off the Title to the property once they no longer have any interest in it.

For instance, if you do not do this, your partner could put a registered interest against your property (a caveat). In other words, this is a notice that someone else has an interest in this property. This cannot be lifted unless by consent or by a hearing.

What if my name isn’t on the Title?

Meanwhile, if your name is not on the mortgage or deed of the house then that does not mean you have no rights or claims to the property. This means you should talk to a lawyer.

If you have been living in the property or are in a de facto relationship with your partner, this means the Family Home may be relationship property – unless you have a prenuptial agreement or contracting out an agreement in place.

Download our free guide to Separation Agreements

How to work out a Family Home Market Value yourself

Real estate agents

You can ask real estate agents in your area who are experienced and acquainted with properties which are similar to yours. Perhaps ask for a few different estimates from local real estate agents and take the average of these. Just be aware that if these agents are only looking at comparable sales in your area, you will want to take into account differences such as location, exterior presentation, and conditions of the property and any changes in the CV values.

Online sources

In comparison, a more objective estimate may come from the property’s Quotable Value (QV). QV has some great online resources too. There are both free and paid options to purchase local sales reports which may include your property.

Sometimes the rateable value (government valuation of the house) will be accurate as to market value but it cannot be relied on alone. You can find out rateable value information on your local council’s website for free.

Unless a combination of both of the above methods will give you a more accurate estimate of market value you can both rely on, you risk undervaluing or overvaluing the buy out. In short, get as many assessments as you can possibly afford!

Get this written down in a Separation Agreement

Getting everything formalised in an agreement does not have to be expensive. At Agreeable, we can provide you with a Separation Agreement for just $450, saving you hundreds on upfront costs compared to a typical law firm.

Then, separation agreements require certification and independent advice from a separate lawyer for both of you. Agreeable also provides this service online. Apply for certification with us, and we’ll get you a fixed quote for two separate lawyers to certify your agreement, so you’ll know what it costs before committing. If you accept the quote, we’ll connect you both to your lawyers for online advice & signing. It’s the best value, most stress-free way to get a separation agreement in NZ.

Click here to find out more information about the difference between Separation and Divorce.

Having a certified Separation Agreement has a raft of benefits, not least when applying for finance as some lenders may be wary of unresolved relationship property issues. An agreement shows that everything is formalised and agreed upon.

After the buy out

  1. Pay your partner’s buy out price as you have agreed
  2. Refinance the mortgage: as a result of the buy out, you will likely want to or need to refinance the mortgage on your Family Home.

Check out our other articles:

The Property (Relationships) Act: A Handy Guide for Kiwis in 2023

Separation vs Divorce: The Legal Differences You Should Know