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Property specialist, Transfer of equity
When you own a property jointly with someone else, there may be occasions when you want or need to transfer full ownership to you or to them. Alternatively, you may wish to add one or more people as joint owners with you. Typical examples are:
- On divorce or separation. If you’re divorcing or separating, your home will often be sold to release equity for both parties. But sometimes, the parties will agree that one will buy out the other’s interest. Alternatively, the Court will order such an arrangement. This usually forms part of an overall division of assets. Sometimes, a consideration is securing a suitable home for the person with whom children are going to spend the most time.
- On marriage or cohabitation. It may be that one party bought the property before entering into the relationship. Now, there’s a desire for both parties to become co-owners.
- Property owned with friends or family. With ever-rising house prices, more people are buying properties jointly with friends or family. Ultimately, there may come a time when one party wishes to buy out the other.
- Tax efficiency. Sometimes it’s tax efficient for Inheritance Tax (IHT) purposes for (often older) people to transfer some or all of the equity in their home to children or other family members.
In all of these situations, to achieve the change legally, you require a formal transfer of equity.
What is a transfer of equity?
The ‘equity’ in your property is the amount of it you own outright. For example, say your home is worth £500,000, but you have an outstanding mortgage (or other secured borrowings) of £150,000. In that case, the equity in the property is £350,000. A transfer of equity refers to a change in the ownership of the equity. The transfer is usually achieved by adding or removing somebody from the title. However, it’s important to note that a transfer of equity may not involve a transfer of money between the parties.
Don’t forget your mortgage
If there’s a mortgage on the property, a transfer of equity cannot take place without the consent of the mortgage lender. A departing co-owner invariably requires releasing from their liabilities under the mortgage. Before doing so, the lender will need to be satisfied that the remaining owner is able to afford the mortgage on their own.
It’s not uncommon to find that while the party remaining in the property has obtained the mortgage lender’s consent, they have not then taken steps to transfer the property to their sole name. That is often because they do not think it matters if they are paying the mortgage, or their former partner has said they do not want the house. But this can cause problems and delays at a later date when the house is sold as the former partner will remain a co-owner.
Transfer of equity process
A transfer of equity is not usually as involved as a standard sale or purchase.
As discussed above, the first step is to secure the lender’s permission for the transfer. If they agree, a new mortgage offer is usually issued in the names of the new owner(s). If they disagree, you will need to find a new lender.
Subject to your lender’s agreement, your conveyancing solicitor will obtain copies of the title documents from the Land Registry. This confirms the names of the currently registered owners and whether there are any restrictions on the property requiring action before the transfer proceeds.
After checking the title, your solicitor prepares the Transfer Deed (TR1). This confirms:
- the name(s) of the current owner;
- the name(s) of the new owner(s); and
- any consideration (including mortgage debt and money) agreed between the parties.
If there’s stamp duty to pay (see below), your solicitor prepares the SDLT return.
Once everyone has agreed and signed the Transfer Deed, formal completion takes place and the transaction is registered with the Land Registry.
Stamp Duty on the transfer of equity
If there’s a mortgage on the property, a transfer to joint names can result in a liability to pay Stamp Duty. Even though no money changes hands, the new owner will be taking on liability for the mortgage debt. As such, anything above the threshold will be subject to Stamp Duty Land Tax (SDLT), usually referred to as Stamp Duty. If there is no mortgage, there is no liability for Stamp Duty.
Check out the government’s handy SDLT calculator.
Other Fees
In addition to conveyancing fees for your solicitor to undertake the necessary legal work, there will also be a number of disbursements payable to outside agencies, including search fees, and fees for obtaining office copies of the land or charge certificate. In addition, there will be fees payable to the Land Registry to register the transfer of ownership.
How long does a transfer of equity take?
Assuming the parties all agree on the terms, the process is not usually lengthy. If there is a delay, it’s usually because there are problems in obtaining the mortgage lender’s consent. From start to finish, a typical, straightforward transfer of equity takes between 2 and 4 weeks. However, registering the transaction with the Land Registry takes a little longer.