How to Transfer Equity in a Property with a Mortgage

Transferring ownership in a property is known as ‘transferring equity’. The process is reasonably straightforward, but if there is a mortgage on the property your lender will require you to instruct a solicitor.

Here’s what you need to know about transferring equity in a property with a mortgage::

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Property transfer form being signed

Why might I transfer equity in a property?

A 'transfer of equity' is when an existing owner of a property adds or removes one or more people to the title (ownership) of the property.

You might, for example, decide to transfer equity if you:

  • Adding a new spouse, civil partner or unmarried partner to the deeds of your home
  • Gift a property (or share in a property) to a child, spouse, civil partner or other other family member
  • Buy out an ex-partner after a separation
  • Buy out a joint owner
  • Sell your share in a property

How does a transfer of equity process work?

When transferring equity you or your solicitor must:

  • Review the property’s title documents
  • Prepare transfer deed and other legal documents
  • Seek appropriate consents from lenders, landlords etc.
  • Register the Deed of Transfer (TR1 Form) at HM Land Registry (HMLR)
  • Complete the Stamp Duty Land Tax (SDLT) return form. (even if there is no SDLT payable).

Read more:

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

Adding someone to the title 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 civil partnership.

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

You want to pay off the mortgage

If you intend to pay off the existing mortgage before the point of transfer, having a mortgage won't complicate the process.

If you want to pay off the mortgage at the same time as you transfer the equity, your solicitor will obtain a redemption statement from the lender. The mortgage can then be paid off at the point of transfer.

You want to retain the mortgage

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 - in effect a remortgage.

The lender will need to ensure that the new owners can afford to pay the mortgage and that their lending criteria are met.

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.

The lender will require you to instructor a solicitor to complete the remortgage work. The lender will also need legal representation. If your solicitor is on the lender's legal panel, the solicitor will be able to act for the lender at the same time. This is usually a much quicker and cheaper option than paying for another solicitor to act for the lender.

Before you instruct, check that your solicitor can act for your lender.

If your solicitor is not on your mortgage lender's panel, it could cost you more money in additional fees and could delay your move.
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Buying out a joint owner or removing someone from the title of the property

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 the 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.

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. 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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Puzzled by the remortgage conveyancing process?

Chris Salmon, Director

Author:
Chris Salmon, Director