Transferring ownership of a house 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

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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).

See also: 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

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.

Get a FREE online transfer of equity conveyancing quote

If you would like advice on a transfer of equity, we can help. Quittance offers an all-inclusive transfer of equity conveyancing service that includes all of the above fees. If you will also be remortgaging, this can be completed as part of the process.

Get a free transfer of equity quote online or call us on 0800 612 0377.

Chris Salmon, Director

About the author

Chris Salmon is a co-founder and Director of Quittance Legal Services. Chris has played key roles in the shaping and scaling of a number of legal services brands and is a regular commentator in the legal press.

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