How to Transfer Equity in a Property with a Mortgage

Transferring ownership in a property is known as ‘transferring equity’. The process is reasonably simple - you can do it yourself or ask a solicitor to do it for you. If there is a mortgage, however, things get more complicated. Here’s what you need to know:

Property transfer form being signed

How does a transfer of equity in a property work?

A Transfer of Equity occurs when an existing owner of a property either adds or removes one or more people to the title (ownership) of the property. This can occur for a number of reasons such as when a couple gets married or separates.

Another example of a transfer of equity is when a parent transfers ownership to a child.

When transferring equity you or your solicitor must:

  • Review the property’s title deeds
  • Transfer the deeds and complete various legal documents
  • Register the deed of transfer (TR1 Form) at HM Land Registry
  • Complete the Stamp Duty Land Tax (SDLT) return form. (Note the SDLT form must be completed even if there is no stamp duty payable).

Read more:

Do I Pay Stamp Duty Land Tax (SDLT) on a Transfer of Equity?

How does a mortgage complicate matters?

When the original mortgage was granted, the lender will have carried out various affordability and suitability checks on the owner/s. When equity is transferred, the composition of ownership will change. The lender will, therefore, need to carry out new checks on the new owners.

The lender will need to ensure that the new owners can afford to pay the mortgage and that their lending criteria are met. If there is a mortgage in place, most transfers of equity will also require a remortgage to be carried out.

If If a joint owner is being removed from the deeds, they will need to be released from the terms and conditions of the mortgage.

Adding someone to the ownership of the property

You may want to add another person to the deeds of your property if, for example, you got married or entered into a new relationship.

As at least one owner will continue to own the property, the transfer of the deed will be comparatively straightforward.

If the intention is to pay off the mortgage at the same time as the transfer of equity, your solicitor will need to write to the lender. The lender will confirm the terms of early repayment and provide a statement of how much is needed to clear the mortgage.

If you and your new co-owner intend to retain a mortgage, a remortgage can be carried out with the same lender, or a different one.

Either way, you will need to satisfy the lender that the new owners can afford to repay the mortgage. It is a good idea to contact the lender and agree on a mortgage in principle (MIP), sometimes called a decision in principle’ (DIP), before starting the legal process.

Buying out a joint owner or removing someone from the ownership

You may wish to buy out the other owner/s share in the property if, for example, you are separating from a partner.

In this case, the lender will need to confirm that you are able to repay the mortgage on your own. If you don’t pass the lender’s affordability checks, you may be refused a mortgage. If you can, it would be a good idea to obtain a mortgage in principle from your existing or new lender before embarking on the legal process.

Gifting the property to someone else

Gifting a property to children can reduce potential inheritance tax (IHT) liabilities. If you intend to gift your property to your children, the transfer of the equity process is more complicated.

If there is a mortgage on the property, this will need to be paid off before the transfer of equity can complete.

If the property is being gifted to someone who is under 18, a ‘Deed of Trust’ will need to be set up as a minor cannot legally own a property. The deed of trust will enable a trustee to hold the ownership of the property until the person turns 18 and the equity can be transferred.

What are my options if the new owner/s do not pass the lender’s eligibility checks?

Whether you will be the sole owner or are adding a new person to the deeds, it is a good idea to obtain a mortgage in principle from the lender. The lender should be able to confirm that you can afford the amount you're looking to borrow and that you meet their lending criteria.

If the lender is not prepared to offer a mortgage you will have the following options:

  • Borrow a lower amount
  • Approach an alternative lender
  • Seek a guarantor for the mortgage
  • Pay off the mortgage in full

Will transferring my equity remove me from liability?

Yes. If you are transferring your equity to an existing co-owner or new party, you will pass your liability under tne terms of the mortgage to the remaining owners of the property.

What if I will be remortgaging at the same time as transferring equity?

In a transfer of equity where a property is jointly owned and one party is leaving, the remaining party would normally buy out the leaving party. The remaining party will normally remortgage the property - unless they are paying cash.

The leaving party might also sell their share to a second new party which would also require a remortgage.

The remortgage could be with the existing lender or a new lender.

If you will be remortgaging at the same time as the equity transfer, there is no need to tell your existing lender. The new owners will be parties to the new mortgage and the old mortgage will be paid off when the new mortgage comes into effect.

Will a remortgage delay a transfer of equity?

If there is an existing mortgage in place and you intend to stay with the same lender, the transfer will typically take longer as you will need written consent from your lender. The lender will also need to investigate the eligibility of the new owner/s.

If you are remortgaging with a different lender, you won't need consent from your existing lender but the remortgage will need to be carried out at the same time as the transfer. Lenders are currently backlogged due to COVID-19 so the transfer of equity process may take 6 to 8 weeks if you are remortgaging.

Will a transfer of equity delay a remortgage?

Transferring equity in a property without an existing mortgage is usually straightforward and can be completed in 2 - 4 weeks, Remortgages typically take 6 to 8 weeks - although COVID-19 is leading to delays with many lenders. As the legal work on the transfer of equity can be complete in parallel with the mortgage, the transfer should not delay the remortgage process.

Transferring equity in a leasehold properties

If the property is a leasehold flat, the conveyancing solicitor will need to obtain a copy of the lease and comply with the terms therein. The solicitor will need to formally notify the landlord or freeholder (who will usually charge a fee) of the proposed transfer.

Your next step

Whether you are gifting a property to a child, getting married or separating, or transferring equity for any other reason, we can help you find an expert conveyancing solicitor. Even if you are just looking for advice, we can help.

If you are also planning to remortgage as part of the transfer process, the remortgage legal work can be completed at the same time as your transfer of equity.

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Chris Salmon, Director

Author:
Chris Salmon, Director