Mortgage prenups: Should you sign one when buying a house with your partner, and what happens if you break up?

• Buying a house with your partner is the only way many people can afford to get on the property ladder
• But couples often do so without considering what would happen if they break up
• That’s what happened to Tom Lord, who regrets not having had a legal agreement in place - despite an amicable separation
• A property expert has urged people buying a home together to sign a legal agreement which is often known as a mortgage ‘prenup’

It is one of the biggest decisions a couple will ever make - and almost certainly their biggest joint purchase.

But what happens if you break up after buying a house with your partner?

One homeowner for whom the dream of co-buying ‘fell apart’ when their relationship ended has spoken of his regrets.

And an expert has explained what happens when you break up after buying a house together and why you should always sign an agreement commonly known as a mortgage ‘prenup’.

‘Naive to jump into buying a house’

Looking back, Tom Lord, a 33-year-old PR account director from Leeds, says he was ‘naive’ to ‘jump into’ buying a property with his first serious girlfriend.

While everything went well at first, they broke up at the start of the Covid pandemic and spent lockdown living together in the house they co-owned.

Convinced their love would last, they had put no financial safeguards in place - something Tom accepts was a mistake, despite things thankfully working out in the end.

Tom met his girlfriend at Newcastle University, where she was two years below him, and they decided to take the plunge and buy a house together after she graduated in 2017.

They settled upon a two-bed home in the Garforth area of Leeds, which they bought for £142,000 and shared the £531-a-month mortgage payments.

Despite having been together for six years, Tom says they had never ‘tested’ what living together would be like, and he says it was ‘probably too soon’ to buy a place together - even though it appeared to make financial sense at the time.

‘Don’t get sucked into the dream’

After a few years living in the home they had bought together Tom says they realised ‘we didn’t want the same thing’, so they decided to break up.

He was able to re-negotiate his salary and adjust his monthly mortgage payments to afford the house on his own.

But when the pandemic struck, his company cut salaries to 80 per cent, putting him below the threshold required to cover the mortgage alone.

Concerned about selling at that time and despite the tension, Tom and his partner decided to stay in the house during lockdown.

Tom said: “There was a respectful understanding and we both had our own space”.

When the lockdown ended, Tom’s financial situation improved, putting him in a position to buy out his ex from the house.

They went through financial advisors, worked out what was fair, and agreed on a settlement. Tom continued living in the home they had once shared.

The financial separation was arranged amicably, says Tom, and although there were penalties for remortgaging and early buy-outs he says they both ‘needed to move on’.

“Looking back, I wish I’d been more cautious,” said Tom. “You don’t always think about the ‘what-ifs’ when you’re young. You get caught up in the excitement of buying a house, and you don’t think about things falling apart.”

What is a mortgage ‘prenup’ and why should you sign one?

Reflecting on the financial aspects of the breakup, Tom wishes he'd had the foresight to sign a declaration of trust, often known as a ‘mortgage prenup’, which would have made the split far simpler.

A declaration of trust is a legally-binding document that sets out how much each person has contributed to the costs of the property and how its value will be split upon sale.

Tom said: “It was a steep learning curve but now I’m more aware of how important it is to think these things through.

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“If I could offer any advice to young couples it would be ‘don't get sucked into the dream’, think before you sign any contracts, and consider the possibility of it ending.”

Although their relationship ended, things have worked out financially for Tom.

He said: “I've got a lot more equity in the house now than if we’d sold it at the time. I'd probably have had to go and rent, and I'd have been in a much worse position today.

“So me staying in the house has worked out. I see her sporadically and she's moved on too and is enjoying life.”

What happens to the house if you break up with your partner?

Many couples spend hours discussing how to get that all-important foot on the property ladder as first-time buyers, but they often fail to consider what happens if their relationship collapses.

Jo Pocklington, managing director of Purplebricks Mortgages, said: “In my 23 years’ experience, I’ve seen the biggest property mistakes often happen when emotions are running high after a break-up.”

She added: “I always tell clients: protect your financial future first, deal with the emotions second.”

Below are her top five tips to help home-owning couples facing a break-up.

1. Assess your legal standing

I’m finding an increasing number of my clients go into joint property buying with a Cohabitation Agreement drawn up between them.

This joint agreement clarifies how the partnership will run whilst you live together, how much you both contribute financially to any mortgage, any maintenance issues, household expenses etc. Within this there should also be a section on what will happen to the property and your individual shares in it, should you decide to separate and potentially sell.

Your Cohabitation Agreement should help establish certainty and reduce the risk of future disputes.

2. Review your options by speaking to a trusted broker

No prior agreement in place? A trusted mortgage broker should be your first port of call because a qualified and trusted broker can help map out your financial options and help prevent costly mistakes during this difficult time.

They'll help to assess whether you can afford to buy out your ex-partner, remortgage in your sole name, or need to sell the property entirely.

Your broker can also advise on crucial timing aspects, such as when to initiate a remortgage application or whether you should remain on the existing mortgage until the property is sold.

It’s advisable, if possible, for you and your ex-partner to have a clear idea about what you both want and if there is any possibility of achieving this smoothly.

This can be an emotionally challenging time - it is therefore crucial to remember you are not alone and that professional advice is available to help you assess the best options, and navigate on your behalf whilst taking away the emotional difficulties.

3. Sell the property

Selling up and making a clean break can be the most straightforward solution.

Despite an attachment to the shared home, many ex-couples choose this solution because it can give them the money to find somewhere else to live while potentially avoiding any unpleasant monetary discussions.

However, timing can again play a crucial role when pursuing this option. Jo advises that couples should get an up-to-date valuation and calculate their likely equity split after settling the existing mortgage and covering selling costs.

Often, it may be a good idea to consider if putting some money in to help towards renovations may be financially beneficial for both parties. This may be recommended when the home gets a valuation and it can mean both homeowners have the opportunity to put more money in to get more out.

It is also worth noting that couples should go into the sale with a realistic expectation on what they will get back.

House prices may have gone up, meaning they will likely get more money than what they paid, but values could just as easily have gone down, meaning both parties receive less than they put in.

It is worth couples considering whether to sell first and rent temporarily while they both find their ideal next home. This can reduce the pressure of trying to coordinate simultaneous purchases and gives you time to make clear-headed decisions about your next move.

4. If the mortgage is joint, continue making the payments and come to a legal agreement

If an immediate sale or buyout isn't feasible, maintaining mortgage payments is critical to protect both parties' credit scores and future borrowing capacity.

One of the biggest mistakes separating couples make is falling behind on their mortgage payments in the aftermath of a breakup.

Despite whatever may have happened between the couple, it’s key to remember that until the property is formally transferred or sold, both people remain legally responsible for the mortgage.

It can feel like the best solution is to go your separate ways and find the quickest solution, especially if the relationship ended on bad terms, but there is a benefit to taking your time to assess which options work better for the long term and which solution will give you both the best chance at moving on and finding a place of your own.

It is also entirely possible for one person to take over the mortgage payments after the separation. This happens frequently when one partner has a significantly higher income than the other to make this viable.

If your ex-partner volunteers to pay the monthly mortgage payments as a solution, you should still be regularly checking your mortgage account to verify that the payment has been made. Ultimately it does not affect the lender who pays the mortgage, but it does need to be paid regardless of who is doing it.

5. One partner buys the other partner out

Finally, it might not always be a preferred option for both sides to give up the property.

Although many opt for the ‘cut and run’ solution, this can leave both parties’ with an uncertain future.

But, if it’s financially possible, one option could be for one person to buy out their ex’s share of the property. This is particularly appealing to those who have emotional ties to the property or if children are involved.

If one person wants to remortgage to buy the other out in full, a mortgage broker can advise whether this is a viable possibility, and help find the best mortgage deal for the situation.

But this process typically involves remortgaging to release equity to pay off your ex-partner's share, which needs to be based on a current market valuation.

A good way to ensure this process goes as smoothly as possible is to arrange for a property valuation, this will reveal to you both how much money you are owed from your portion of the equity.

However, you should also keep in mind that the process of remortgaging to buy someone out can offer some unwanted complications.

For example, there may not be enough equity in the property to remortgage at a higher amount or your ex-partner may simply not be able to pass the affordability calculation on their own.

Although it may be the nicer solution because it gives one side the money to start again while also allowing the other to keep some normality and stability, there are also some additional costs you should consider like stamp duty, legal fees, and any early repayment charges on your existing mortgage when calculating the total cost of a buyout.

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