When we talk about transfer of equity, we are referring to the legal status of a property’s ownership between a couple or co-owners. For example:
– A property owner might add their spouse to the property deeds once they marry or remarry
– A property owner might remove an ex-partner from their property deed if they divorce
– Property owners might seek to adjust the percentage shares of ownership of a property that they co-own, or one joint owner might use it to formally reflect the buying out of a co-owner’s share
– Transfer of equities can also be used to maximise personal capital gains limits or to reduce future liabilities for inheritance tax.
What is equity exactly?
Equity is the amount of a property that you truly own, i.e. the value of your ownership, once the mortgage liability is removed. If you have a mortgage of £150,000 on a home worth £250,000 then you have equity of £100,000. You could transfer half of this equity – £50,000 in this example – if you wish to add a co-owner, for example, if you got married. You cannot transfer value that is effectively owned by the bank because of an outstanding mortgage liability. Only when the mortgage is paid off in full will you have full equity of the property you own.
How does equity transfer happen: the process
The process begins by firstly obtaining the official copy of the property’s title via the Land Registry. This is used to check whether there is a mortgage outstanding on the property, the amount and whether there are any other restrictions outstanding on the property. This is a conveyancing matter governed by law and it is carried out by a transfer of equity solicitor.
The mortgage consideration
The solicitor reviews the property or title deeds, verifies the client’s IDs and prepares the necessary transfer deed. The following steps of the process will vary according to whether or not a mortgage exists against the property. If there are no mortgages, the existing and new property owners will sign the deed with a witness present and the new transfer deed will be registered at the Land Registry by the https://www.parachutelaw.co.uk/transfer-of-equity-solicitor transfer of equity solicitor.
If the transaction value is above £40,000, then a stamp duty certificate will be required. If the property is mortgaged, the lender will first need to give approval of the transfer. This is because the newly added person will become equally liable for the outstanding mortgage and the lender must process their application through their own processes to grant that credit.
The same situation applies in reverse if you remove someone from the property title, in that the full liability for an outstanding mortgage than goes to whoever owns the property. The mortgage lender will want to check that the remaining owner, or owners, can commit to making the full mortgage payments before they offer consent and this must be given in writing. If the lender does not agree to the transfer, then the owners must close the mortgage by paying it off first – either with cash, by selling, or by taking out another lending product with a lender who will consent to the revised ownership.
In all instances, it is important for the property owners to take advice from a solicitor before they commit to an equity transfer and to fully understand the implications and ramifications of such a move. This is particularly important where a mortgage still exists on the property and the liability arrangements for that mortgage will transfer when the equity transfer takes place.
