Transfer of Equity – When there’s a mortgage
A transfer of equity is where ownership of a property is transferred, but the original name on the title deeds is not removed. A transfer of equity might occur when one married partner adds their spouse to the title deeds. This is called a 1:2 transfer. It can also occur when a couple is divorcing, and one name is being removed from the title deeds. This is known as a 2:1 transfer. If there is a mortgage on the property, the people who are liable for this mortgage will change.
New owners added to the title deeds of a property will be liable for the mortgage. Therefore the mortgage lender will need to know they can trust this new owner. Because of this, the new owner will have to pass the lender’s eligibility checks. These will vary depending on the lender and the mortgage. A standard eligibility check will include whether they have:
- Enough income to be eligible for the current mortgage
- Passed a credit check
- Have UK residency
- Are appropriate age
This can be quite simple, as often the lender will be looking at your combined income of you and who you are living with. This is often a spouse or civil partner, which usually means your joint income is either the same as when the mortgage was agreed or higher. The new joint owners would confirm their liability for the mortgage in the transfer deed. The lender can give their consent through this transfer deed, or in a separate confirmation letter.
If someone is being removed from the title deeds, the lender will have to agree to this. The lender needs to make sure that the remaining party will be able to pay the remaining mortgage. The lender, if happy, will then release the outgoing owner from their mortgage.
Re-Mortgaging
When you are transferring title deeds, you will often review your mortgage. You may have worked out that the plan you are on is no longer the right one for you. If this is the case, and you can find a better mortgage rate, you can re-mortgage your property. Similarly, if you fail your eligibility check with your lender, re-mortgaging can be a good option. Re-mortgaging your home as you transfer equity is often a good solution. It can mean you get a better rate on your mortgage and allows you to raise additional capital. However, it is important to check with your conveyancing solicitor before you do this.
Tenants in Common
If you own a property with other people and are tenants in common, and you are transferring to one remaining owner, it is slightly more complicated. If no money is being paid by the remaining owner to the owners leaving, then the remaining owner will have to sign a ‘Statutory Declaration as to Equitable Title’. This declares that they are solely entitled to the equity on the property. This also means they are solely reliable for the mortgage.
Restrictions
Aside from failing an eligibility check, there are other factors which could stop a transfer of equity. These include: If the property is buy-to-let and a new owner wants to live in the property, or if a person removed from the mortgage continues to live on the property.
Stamp Duty
Unless you are divorcing, Stamp Duty Land Tax may have to be paid on a transfer of equity. Stamp Duty is paid on the total ‘consideration’ above the current threshold of £125,000. The total consideration consists of the equity you take on, and the amount of mortgage you take on.
For example, a property may have equity of £600,000 and a mortgage of £200,000. If you take on 50% of the equity and 50% the mortgage, this will total to £400,000. You’ll pay stamp duty on the amount you’re over £125,000. In this case, you’d pay stamp duty on £275,000.
If you are divorcing: if you split the property between you or under the terms of a court order, you won’t have to pay stamp duty.
Lastly, when transferring property, you’ll need to inform HM Land Registry of the change of ownership. Your conveyancing solicitor will help you do this.
If you are thinking of completing a transfer of equity, The Law Superstore can offer quotes on the best solicitors in your area. Through us, you’ll be able to find the perfect solicitor to meet your needs.