Transfer of equity mortgages explained
If you need to partly change who owns a property then this is called transfer of equity. It could involve adding someone, removing someone or both!
For most people this will also involve making changes to the mortgage arrangements by using a transfer of equity mortgage.
A transfer of equity is not the same as selling a property as at least one of the original owners must remain on the title deeds.
Personal circumstances change and relationships change. Death, divorce, separation and marriage are common reasons for altering who owns a property.
The basic process of altering the owners is straightforward enough, even with a mortgage in place. Fortunately there will be no other buyers or sellers forming a property chain to cause delays and issues.
This guide aims to provide a broad overview of what a transfer of equity is, how it works and the overall process.
What is equity?
Let’s start by looking at what we mean by equity.
For property ownership, equity is the amount of the property that you actually own outright. To calculate equity you would take the value of your home and then deduct what you owe to your mortgage lender along with any second mortgages or loans.
The amount leftover is your equity.
Here’s a quick example
| Property value | £300,000 |
| Less outstanding mortgage and secured loans | £150,000 |
| Equity | £150,000 |
So in this example above there’s an existing £150,000 mortgage to deal with. If the property were sold for £300,000 there would be £150,000 left over to divide between the owners. Ownership of a property is not always 50/50 so the method of splitting the equity is normally based on the percentage owned.
What is transfer of equity?
Transfer of equity describes the process of changing who owns a property by adding or removing an owner.
This is not the same as selling, as at least one of the original owners will remain on the title deeds.
This way of changing the ownership will often involve paying money over the person who is leaving, effectively buying them out. However, these transfers do not always involve exchanging money, as long as both sides can agree.
It is more common for a transfer of equity (ToE) to also involve making changes to the mortgage. This will happen simultaneously. The legal side is still applicable to unencumbered properties but without the need to amend the charge records.
You could also transfer equity by way of a gift.
This could be a parent who adds a child to the property title deeds as a co-owner. The child receives a share of the ownership but without them having to pay for it.
Owners can hold property such as a house or flat, in one of two ways: either as joint tenants or as tenants in common. Up to four people can own a property as tenants in common, and shares do not have to be split equally.
There’s also the option for parents to sell a property to their children, but for a discounted price.
This is perfectly OK to do.
A concessionary purchase mortgage would be needed by the child, as the lender needs to be made aware of the discount. If the discount is allocated as a deposit there’s a chance of getting a 100% mortgage to finance the deal.
Read more: What is a concessionary purchase mortgage?
Examples
There are a number of different ways and reasons why a transfer of property ownership and equity would be needed.
Below we have listed just a few of the most common to give you a better idea how it works in different situations.
Joint to single
A couple who own a property separate, one of them is bought out and leaves the property.
Single to joint
A new partner moves into a property owned by just one person, and has a share of the equity.
Joint to joint
An ex-partner is replaced by a new person who is granted part ownership of the property.
Our article “How to buy someone out of a house” looks at the steps needed to buy someone out, while you remain in the property.
What is a transfer of equity mortgage?
Most situations that involve changes to the ownership of a property will also have a mortgage to deal with. You can’t change one without the other.
So this is the perfect time to consider remortgaging to a new lender, while updating the borrowers at the same time.
This would be called a transfer of equity remortgage.
Like any remortgage it will involve all relevant parties making a mortgage application to a new lender. This is a formal process, so the lender will ask for proof of id, proof of income and outgoings etc. If you are adding someone to the mortgage then the new borrowers must be acceptable to the lender, including affordability of the repayments, before a mortgage offer can be issued.
Ideally, the remortgage should take place once any exit fee periods have expired. Unfortunately a transfer of title is a good example of why people remortgage early, even though there are extra costs.
Sometimes stuff just needs to get done!
MORTGAGE LENDER
While a transfer of equity can be done with the existing lender, it is a good opportunity to search the market for a great deal.
Perhaps a different lender is needed due to income multiples or affordability.
BORROW EXTRA
A TOE will often require extra money so that the person leaving the property can be bought out and receive their share of the equity.
A capital raising remortgage will allow you to apply for a larger mortgage to assist with this.
ERC’S
Your mortgage broker will always check this but it is vital that any early repayment charges are clarified before the remortgage process begins.
These fees can be very large and need to be considered beforehand.
The people who will own the property are the ones to apply for the mortgage. Once this new mortgage is ready it is used to repay the previous mortgage and the altered ownership begins.
You could change a joint mortgage to a single mortgage, or vice versa and even change just one of the borrowers on a joint mortgage.
Will I need a solicitor?
All mortgages require at least one solicitor to undertake the legal work and conveyancing.
At a basic level the duties of a conveyancer dealing with a remortgage this would involve:
- dealing with the actual mortgage monies
- registering the mortgage as a charge
- registering or changing the owners
Where a person is being added or removed on a property, there is no requirement for a further solicitor.
Most lenders will allow their own solicitor to do the basic legal conveyancing work for you. This could be at a discounted rate or even free.
There is likely to be a modest extra charge to cover the work needed for the transfer of equity.
However, if the nature of the transfer is complicated or if the relationship is no longer amicable, each party seeking their own independent legal advice would be a good idea.
Our article Do I need a solicitor to buy out my partner? looks at this question in a bit more depth.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
The process
Here’s a quick rundown of the process of transferring equity where there is also a mortgage.
Before anything can begin the current owners need to be in agreement about the financial side of the transaction. If equity exists in a property then it will have a value. This may be simple to determine if ownership is a straightforward 50/50.
However, where one party contributed a higher deposit in the beginning, or perhaps has paid a larger proportion of the mortgage repayments, a claim could be made for a larger percentage share of the equity.
You do not need legal intervention at this stage, providing everyone agrees. Legal challenges are costly and time consuming and should be left as a last resort if possible.
Once each side is happy with the planned changes then the transfer of equity process can begin.
The legal process
The legal side of removing someone from a mortgage is fairly simple but does require a solicitor or conveyancer. They will be responsible for making changes at the Land Registry regarding the property owners and correctly registering the mortgage as a charge on the property.
As it’s a remortgage there will be no chain and no requirement for searches.
Where the transaction involves a new lender, the solicitor will be responsible for receiving the new mortgage monies and then using it to repay the outgoing lender.
If extra money has been borrowed then this will be passed to you, if you have capital raised, or maybe to the person/s leaving the property as an agreed sum for their equity.
The mortgage process
A transfer of equity will be a remortgage, as you are not moving home.
The people applying for the remortgage should be the same people who will own the property, after the changes have been registered.
So if currently the property is in joint names, but someone will be leaving, then only you need to apply for the mortgage.
The lender will treat this as a new mortgage application and will check that you are eligible to borrow the money and that it is affordable.
They will need to value the property, although this can often be done without physically visiting the property. This valuation needs to closely match yours, otherwise the loan to value percentage will change and you may need to borrow less than requested.
Once you have received the mortgage offer the legal side can move forwards to switch the lenders.
Do you need a mortgage broker?
Whether or not you use the services of a mortgage broker will be down to personal choice.
As long as your situation is fairly straightforward you could approach your current lender or perhaps one of the mainstream lenders direct.
There’s a couple of things to remember:
Using a mortgage broker means that you will have the greatest choice of lenders and mortgage products. A whole of market mortgage broker typically has access to over 100 lenders, big and small, well known and not so well known.
Your broker will have experience of similar situations and will be able to guide you through the remortgage process and also the transfer of equity itself.
A broker will take away the burden of contacting different lenders, checking to see if you are eligible and comparing which deal might be the best.
They will be able to find specialist lenders if your situation is complex, involves bad credit or if you need higher income multiples.
Yes, we are biased. But you will be much better off if you allow a qualified professional to handle the mortgage side of things for you.
FAQ
Frequently Asked Questions
Does a transfer of equity mean a remortgage?
There are two parts to a TOE, the transfer of ownership, or equity, and dealing with the mortgage. Where a mortgage already exists, or is required, then this would be a remortgage.
Can you apply for a transfer of equity mortgage with bad credit?
There will be lenders who provide bad credit mortgages. Give your mortgage broker a copy of your credit report so they can provide a proper assessment.
Do you need 2 solicitors for a transfer of equity.
It is perfectly normal to only use one solicitor. However, if the equity split is complicated, or acrimonious, then separate legal advice would be a sensible idea.
Will this work for a buy to let?
Yes, transferring part ownership can be done on any property; residential, holiday home, holiday let or buy to let.
Can I borrow more money?
In principle yes. But this will depend on the amount of equity in the property and the affordability of the higher loan amount.
Can you remove someone and add someone else at the same time?
Yes, and this is very common. Adding someone to the mortgage means that the mortgage lender will need to approve the new person as part of the mortgage application.
