Whether it is planned, or unplanned, sometimes there is a need to change some of the people that own a property, without actually selling it.
This will often be because a relationship or a marriage has broken down and the couple separates. While some couples in this situation may choose to sell the property, others will look to buyout the person leaving, so that they can continue living in the property.
This process of buying someone out is known as transfer of equity. So named because the person who leaves the home ‘transfers’ or sells their ownership (equity) to someone else.
The equity could be transferred to the remaining owner/s or to someone else such as a friend or new partner.
This guide looks at how long a transfer of equity would take and provides an overview of the whole process.
What is Transfer of Equity?
The equity in a property is the value that you own outright, after taking into consideration any mortgage or secured loans.
| FOR EXAMPLE | |
|---|---|
| Property value | £400,000 |
| Less main mortgage | £150,000 |
| Less second charge mortgage | £30,000 |
| EQUITY | £220,000 |
So in the example above the total equity is £220,000 which belongs to the owners of the property, as registered with HMRC Land Registry.
A transfer of equity is needed when one of the owners leaves the property and agrees to be bought out by the remaining owner. If there are two owners, who each have an equal share, then they both have £110,000 equity stake. So the person leaving will be expecting a payment of £110,000 for their share, or equity, in the property.
A solicitor will be needed to transfer the equity from one owner to the other, and then the title deeds at Land Registry will be updated to show the new ownership.
Transfer of equity examples
To help illustrate how a transfer of equity could work, we have provided some examples or reasons below.
Any transfer of equity will require at least one of the current owners to remain.
If not, the transfer is treated as a sale.
Joint to single
There’s quite a few scenarios that may need joint ownership to be changed into single. Most common would probably be a couple who had bought the property together, but due to a break up one partner is now leaving.
Alternatively, it could have been purchased by two friends, or even two siblings, and one now needs to move on.
Single to joint
If you already own your home, you may want to allow your partner to be added to the deeds as a joint owner.
This necessarily also means becoming part of the mortgage and being responsible for repayments.
Whether or not any money changes hands for the equity will be up to you. But you may wish to seek some legal advice before jumping in.
Joint to joint
This could be combination of any of the scenarios above. The mortgage situation starts with two borrowers and ends with two borrowers.
If ownership is between friends, then if one wishes to leave you can ‘replace’ them with another who is in a position to afford the buyout amount needed.
Alternatively, you may be in a position to remove an ex from the deeds and replace them with a new partner at the same time.
Investment properties
While a transfer of equity is mostly used to deal with ownership changes for your main residence, there is often a need to alter the ownership of second homes or investment properties.
The reasons can be the same but also some co-owners may just need to extract their capital as funds are needed elsewhere.
The transfer process is the same but the remortgage required will need to match the use of the property.
This means that a buy to let needs a buy to let remortgage and a holiday rental needs a holiday let remortgage etc. Your broker will be able to advise you what is required.
So how long does all of this take?
A transfer of equity normally takes 4-6 weeks to complete.
This is from the point of applying for the mortgage and is for an average transaction without any delays.
We will run through the process of what needs to happen below.
Essentially you are changing the mortgage lender, the borrowers and the ownership of the property all at the same time.
Delays can occur from the mortgage processing, if the underwriter requests more information or spots something on your credit report.
Equally, acrimonious separations will often slow things down, particularly if one side deliberately delays returning documents for example.
The transfer of equity process
Unless you already own the property outright, a transfer of equity will involve:
- Making changes to the mortgage or setting up a new remortgage
- Updating the title deeds with the new owners
For straightforward cases, where all parties are amicable and in agreement, the mortgage application will be sufficient to make all of the necessary changes. This is because the solicitor who handles the mortgage paperwork can also update Land Registry records.
SEEK ADVICE
The first task is always seek some advice. We recommend speaking with an independent mortgage broker, who will be able to confirm your options with regards to the mortgage and also give some guidance on costs and fees.
Legal advice is down to personal choice and many people work through the issues themselves to save time and money. But some situations mean that legal opinions and agreements are needed from a solicitor, to protect financial interests and avoid future conflicts.
Do I need a solicitor to buy out my partner?
Do you need a solicitor to remortgage?
APPLY FOR THE MORTGAGE
Once everything has been agreed you can apply for your new mortgage.
Your mortgage broker will help you with this and will ensure you have enough time to gather all of the necessary documents together.
When you apply for a transfer of equity remortgage the solicitor involved will ensure the property charge is changed in favour of the new lender and also change the ownership of the property. If your situation is simple then you can often use the lenders solicitor, either for free, or for a discounted rate.
For more complex arrangements you may want to employ your own solicitor to work on your side of the transaction.
LEGAL COMPLETION
Legal completion is the point when all of the changes take effect.
If, as part of your remortgage application, you needed to borrow extra money to pay off an ex-partner, then this money will be sent to your solicitor who will then pay it on to the person leaving.
You may also like to read How to buy someone out of a house.
What could cause a delay?
We have mentioned that a standard transfer of equity takes around 4-6 weeks.
But delays can and do happen, and not all of them can be predicted.
A large part of an equity transfer is the setting up of the new mortgage. The new owners will need to re-apply for the mortgage and provide all of the usual documents like ID, payslips and bank statements etc.
It’s possible that the lenders valuation of your property comes back with a lower figure than you had provided. This obviously will affect the mortgage loan to value and your calculation of the available equity.
All lender’s will check that a borrower can afford the new mortgage, and they will be looking into your credit score and how you spend your money.
While your mortgage broker will always aim to suggest a lender who is the best fit for you, there are occasions where other information comes to light that affects or delays the application.
In the worst cases this would mean rejection by the lender and then re-applying for a new mortgage. This is always something to be avoided as it does affect your credit file.
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.
How long does it take without a mortgage?
While most situations that involve one owner buying out another owner, include a mortgage, it’s generally the mortgage side that can slow things down.
So transfers of equity without the need to arrange a new mortgage are much quicker to conclude. They can often be done in 2 – 3 weeks.
Although it’s technically possible for you to deal direct with Land Registry in this situation, and apply for the necessary changes, we would recommend letting a conveyancing solicitor do it for you.
Do I need to inform my mortgage lender?
Where you are looking to apply for a transfer of equity remortgage with a new lender, you do not need to formally let your lender know.
This will be done automatically via the new lender and their solicitor.
However, it is possible for your current lender to block the transfer due to mortgage arrears or late payments etc. You will need to sort out these issues with them before the transfer can go ahead.
Most people will approach their current lender first just to check how much they owe and what options are available to them. You then have some information to compare against other deals.
