When you own a property with someone else, you may at some stage want to transfer full ownership to either yourself or the other person. How this is affected depends upon the circumstances, the value of the property, whether there is a mortgage and whether the property is being transferred following the death of the owner.
What is a Transfer of Equity?
A transfer of equity in simple is the addition to or removal of a person from the title to a property.
When might you want to use a Transfer of Equity?
There are many situations in which you might need to affect a transfer of equity. For instance, the first situation which comes to mind is if you are separating from a partner or spouse and one of the parties wishes to retain the jointly owned home and remove the entitlement of the other from the title.
Equally if you own a property alone, you may in the future wish to add a partner or spouse to the title and this gives the incoming owner a share in the property subject to any secured mortgage loan which may exist.
Quite often parents wish to give ownership or a share in the ownership of the property to a child or other family member.
There are many specific situations and the full requirements of the parties need to be considered as the involvement of the mortgage lender is required if the house is held under a mortgage. Contrary to common belief, a share in a property cannot be gifted to another party if there is a mortgage upon the property without first obtaining the consent of the mortgage lender.
Transfer of Equity - Aspects to consider
A transfer of equity can be incredibly simple and completed very quickly. However, if there is a mortgage involved, a couple is divorcing, one person is leaving the home and the other is buying them out then these cases can take longer to process. In these circumstances, we would always recommend that you take advice from a family lawyer, before the transfer of the property is completed.
Similarly, the surrounding implications need to be fully considered by your solicitor when it comes to transferring equity to children, siblings or anyone else. Often such transfers can involve the payment of stamp duty, impact on Capital Gains Tax. In these circumstances, we would always recommend that you take advice from the Wills and Probate Team, before completing the transfer and an accountant regarding any tax liability.
Also regardless of who you are transferring the property to, if you have a mortgage you need consent from the lender before the names on the deeds can be changed. If this is not possible for any reason, then the remaining party may need to consider taking out a completely new mortgage product with the same or a completely different lender.
A similar process needs to be completed when a transfer from one person to two is being contemplated. The lender must consent to the addition of the new owner and quite possibly assess them in a similar fashion to when making a new application for mortgage. The mortgage lender will need to be sure that the new incoming owner can meet the financial obligations and does not have any adverse credit history. A mortgage lender can refuse to allow a second person to be added to the title if its lending criteria are not met.
How long does a Transfer of Equity take?
The main length of time usually comes with a mortgage lender assessing eligibility and processing its consent or requirements. Mortgage lenders work independently to your solicitor and may take days or months to consider your application.
If you are transferring equity without a mortgage lender being involved, the process can be incredibly quick.
The more complicated a situation is, the longer the process can take. If you are separating from a spouse who does not give consent to the transfer, or there are issues with mortgages and payments then this will most certainly prolong the process.
How much does a Transfer of Equity cost?
The cost of a transfer of equity can vary depending on the circumstances of the transaction, the value of the property, as well as whether you were adding, removing or replacing someone on the deeds. Charges also alter depending on whether the property carries a leasehold or freehold title.
Be aware that transferring property can incur other costs and it is therefore vital that you instruct and update your solicitor in detail explaining who is involved, if any consideration is being paid to the outgoing owner, if a court order is required, progress with your mortgage lender and the value of the property. A solicitor may need to vary his estimated charges should aspects come to light later in the transaction which alter the charges which need to be levied.
What is Consideration?
I have mentioned “consideration” above. This is not always paid but it is the amount that the outgoing owner is paid by the remaining owner for his or her share in the property. It can also be a payment made by the incoming owner to the current owner when the buying into the property.
Consideration also includes the assumption of the mortgage debt by the remaining owner. This is because the outgoing owner is relieved of his or her mortgage liability but the remaining owner takes on that debt. This may not feel like a true consideration as it is not cash in hand as such but it is an important aspect which needs to be considered as this will affect the calculation of stamp duty.
Parties to a transfer are often shocked to find that the transfer of property gives rise to a stamp duty payment needing to be made especially as the house has been owned for some time and the parties may have paid stamp duty on the occasion of initial purchase. The value of the property, consideration, assumed mortgage debt all go towards calculating the liability for stamp duty and these values should be made clear to your solicitor at the outset so that a shock later in the process is hopefully avoided.
It should be noted that couples dissolving a marriage and transferring equity by court order will not need to pay Stamp Duty Land Tax (SDLT).
Similarly, if the property is a true ‘gift’ as there is no mortgage or the property is split equally between two people there will be no SDLT to pay.
Can you act for both parties?
Your solicitor cannot act for you both and will advise the other party to take independent legal advice on the transfer even if there is a true gift. This is to avoid any conflict, duress or one party exercising undue influence. If someone decides not to have independent advice on the transfer, they will still need to see a solicitor to complete an identification form (ID1) and a declaration of solvency.
A Transfer of Equity doesn’t have to be complicated or expensive…
In summary, whilst transfers of equity can feel stressful, especially during a separation or divorce they can often go through very simply and quickly. Being aware of any expectations from a mortgage provider as well as the impact a transfer may have on Stamp Duty or other charges is important and a solicitor will be able to support you in explaining the various procedures and legal processes as they occur.
