Perhaps your relationship status has changed and you’re looking to add your partner onto your mortgage, or maybe you’ve reached a certain age and decided that now’s the time to move the ownership of your home to your children as part of a long-term estate plan.
If you are looking to transfer your mortgage and house ownership, whether in full or in part, then you’ll need to make a transfer of equity. This guide explains what this process entails, and some possible implications to consider before committing.
What is equity?Equity is the legal term used to describe how much of a property you own. This can be calculated by subtracting any outstanding mortgage you have yet to repay from the market value of your home.
So for example, if your property is worth £250,000 and you have £120,000 left to repay on your mortgage, you would own £130,000 equity in your home.
What is a transfer of equity?A transfer of equity refers to when the legal owner of a property alters the ownership of their home by adding or removing a person (or multiple people) to or from the title deeds.
A transfer of equity can occur on an existing mortgage, whereby the new owner(s) take on full responsibility and a previous owner(s) can be released from their debt and obligation, or as a remortgage, in which the owners replace an existing mortgage with a more appropriate arrangement.
Common examples of a transfer of equity include:
Turning a sole-applicant mortgage into a joint mortgageOne of the most common reasons for a transfer of equity is when a couple marries and / or moves in together. In this scenario, the original owner is effectively splitting the shares they already have in the property with another person by adding their name to the deeds.
Turning a joint mortgage into a single mortgageOn the flip side of the coin, a transfer of equity often occurs when a couple with a joint mortgage separates, and one person leaves the home. The person remaining in the property will ‘buy out’ the other and take on full responsibility of the mortgage.
Giving a family member share of ownershipA situation that involves a share of ownership being passed on without money changing hands is known as a ‘gifted’ transfer of equity. This type of situation is common amongst families, whereby a parent adds a child to their property deeds.
Transferring a property and mortgage in full to another family memberTransferring a mortgage to a family member is often done for inheritance tax purposes, as part of longer-term estate planning. The person who is taking on the mortgage must first satisfy the lender’s affordability and eligibility assessments.
How do I transfer a mortgage to someone else?In most cases, a transfer of equity is far more straightforward than a typical property purchase, but there is still plenty of legal work involved. It’s also advisable to enlist the help of a broker, because if you’re remortgaging or seeking a new deal, you’ll want to make sure you get the best rates.
The crux of the process involves completing the land registry TR1 form. This should detail the name of the ‘transferor(s)’ (current owner(s)) as well as the transferee(s) (new owner(s)). You’ll also need to get your hands on a copy of the property’s title deeds and any contractual mortgage agreements.
Before you can transfer a mortgage to another person, you’ll need prior consent from your existing mortgage provider; they will carry out eligibility checks to ensure new co-owners meet their requirements before making them equally liable for the mortgage.
Once the lender is confident that the new arrangement is able to fulfill the terms of the agreement, a remortgage will usually take place with the addition of any new party(s), and anyone leaving the deeds will be relieved of their obligations.
What is the process involved in a transfer of equity?
Step 1: Apply for a remortgage or a new mortgageBecause the property’s ownership status is changing, you will need to come to an agreement with your existing mortgage provider. This might be in the form of a remortgage with the same lender, or a new mortgage with a different one.
The latter may give you access to more competitive rates, although there are more formalities involved so the process is likely to take longer. Before committing, it’s worth speaking to a broker to get a quote and discuss your options.
Step 2: Find a conveyancerA conveyancer is responsible for the legal process of transferring home ownership, so you’ll need one to handle the paperwork. If you’re adding another person to the deeds both parties can be represented together, but if someone is leaving you’ll need separate legal representation.
Step 3: Verify your identityAll parties involved will need to provide photographic ID to verify their identity. If someone is leaving the agreement, the conveyancer will need to confirm the source of funds and facilitate the transfer.
Step 4: Tend to the legalitiesYour conveyancer will take care of the paperwork required to get the mortgage agreement in motion. They will cross the Is and dot the Ts with the mortgage provider, as well as the property’s freeholder if applicable.
Step 5: CompletionYour conveyancer will obtain the mortgage deed for you to sign and arrange for any transfer of any funds to take place. Anyone leaving the agreement will need to complete and sign an ID1 form with a witness present.
Step 6: Final formalitiesPost-completion, your conveyancer will provide the land registry with the new details of property ownership. They will also calculate any stamp duty payable to HMRC and arrange for the money to be transferred.
How much does it cost to transfer a mortgage?How much a transfer of equity will set you back can vary considerably depending on your circumstances. Typical costs you may be liable for include:
Legal feesThe cost of conveyancing will depend whether you took out a new mortgage or a remortgage, and how much your home’s worth. You may also have to pay for ID checks, obtaining the property’s Register of Title and to register the change with land registry (although these may be included in your solicitor’s base fee).
Lender feesYour mortgage provider(s) will add on their own fees to cover administrative costs associated with the change, and depending on your existing contract, you may be subject to an Early Repayment Charge (ERC).
Stamp dutyThe most significant cost associated with transferring a mortgage to another party is usually Stamp Duty Land Tax (SDLT), which you may be liable for if taking on equity or a mortgage amounting to £125,000 or more. This is payable upon the transfer of ownership of a property in cases other than divorce or the dissolution of a civil partnership.
What checks are involved in a transfer of equity?When you transfer a mortgage across to another party, your chosen lender will need to reassess the suitability of the applicants just as they would in a new mortgage application.
If you’re taking on more of the weight of the mortgage this will include you, because such a change in circumstances could have a significant impact on your affordability and other eligibility requirements.
One of the most common reasons for a transfer of equity is following a divorce. In this situation, one partner may wish to take on full ownership and responsibility for the mortgage. Your lender will evaluate this in full to make sure they are satisfied that the remaining resident is capable of making the repayments.
Lenders are likely to assess your income, affordability and credit history, to ensure you meet the revised conditions and are financially capable of keeping up with the repayments under the new mortgage terms.
A transfer of equity can often be done within your current mortgage deal, but there’s always the risk that your current lender rejects your application for a transfer if you don’t meet their requirements.
It’s worth using the opportunity to shop around; with the help of a broker, you may find a mortgage offering better rates and more flexible terms.
How does transferring a mortgage affect the loan-to-value?If years have passed since the original mortgage was taken out, chances are you will have paid off a fair chunk of the capital. Rising house prices also change the ratio between the size of the mortgage and the current property value.
Together, these two factors mean your new loan-to-value (LTV) ratio on any renegotiated mortgage or remortgage is likely to work in your favour.
For example, if the house was bought for £140,000 with a deposit of £28,000 (80% LTV), the mortgage of the time would have been appropriate for those figures. If today the value has risen to £175,000 and the remaining mortgage balance is £92,000, the LTV is only 52.57% - a vast difference to the original 80%.
In this scenario, you would have a couple of options if you’re looking to transfer a mortgage:
- Obtain a 52.57% LTV mortgage with a lender offering increased flexibility regarding credit scoring. This is particularly helpful when a single parent is looking to retain the family home following a divorce.
- Release additional equity as cash by applying for an LTV greater than the required 52.57%. A 65% LTV mortgage would result in an additional £21,750 for your use, yet still be relatively flexible regarding the credit checks.
What are the inheritance tax implications of a gifted transfer of equity?There are many rules regarding inheritance tax and making a gift of property, but a transfer of equity to a child is a legitimate way of making some long term inheritance plans.
If you plan to use a transfer of equity to help ensure your family receives the home following your death, it’s advisable to speak to a solicitor. While you won’t be completely exempt from tax liability, it can minimise issues and make for a cleaner inheritance following your death.
A joint mortgage, for example, will transfer immediately upon one partner’s death to the other and is outside both the structure of wills and probate, and inheritance tax. This is the method that allows most married couples to safely keep the family in the event of one of them passing away.
How a broker can help with a transfer of equityLooking to transfer your mortgage to another person? Whether you’re looking to add or remove a beneficiary, or hand over ownership in full, our expert advisors have a thorough understanding of the transfer of equity process.
What’s more, we’re confident that with our extensive market access and lender know-how, we’ll be able to identify a suitable mortgage provider that offers competitive rates and flexible terms to suit your change in circumstances.
Minimise the time, money and wasted rejections: give us a call on 02380 980304, or fill in our simple online contact form and a member of the specialist team will be in touch to discuss your options and get the ball rolling.