Are you wondering if you can pass on a house with a mortgage? It’s a common question with a not-so-straightforward answer. But, don’t fret. In this article, we’ll break it down for you in simple terms.
Whether you’re considering the tax implications of gifting a property with a mortgage or thinking of adding someone as an owner, we'll cover everything you need to know and make the process of transferring ownership with a mortgage clearer.
Can you transfer ownership of a house with a mortgage?
Yes, it is possible to transfer ownership of a house with a mortgage, but certain rules and restrictions come into play. In order to do this, the new owner must successfully pass the lender’s eligibility check. Otherwise, the mortgage should be paid off in full.
Eligibility checks for a mortgage involve several steps, including passing a credit check, proving you can afford the mortgage repayments, meeting the lender’s age requirements, and confirming the right to own property in the UK.
This also applies if you are adding someone as an owner to a property, however it is often less of an issue because the lender will look at your joint income (which is likely to be higher than an individual income) when carrying out their checks.
However, it can be more of a sticking point if you are transferring a property to someone else. If they are not eligible for the existing mortgage, it may be necessary to explore other avenues or alternatives, such as finding a guarantor or paying off the mortgage.
Possible reasons for transferring ownership of a house with a mortgage
There are a whole range of reasons why you might want to transfer ownership of your home to someone else.
Gift or Inheritance: The property owner may wish to pass on the house as a gift to a family member of friend as part of an inheritance plan;
Divorce or Separation: One party may choose to transfer their share of the property to the other in the case of divorce or separation, often as part of a settlement agreement;
Adding a Spouse or Partner: Couples may decide to adjust the ownership of a property, especially if they marry or enter into a civil partnership after purchasing the home;
Estate Planning: Individuals may choose to transfer ownership as part of their broader estate planning strategy;
Financial Planning: Transferring ownership might be considered for financial reasons, such as consolidating debts or restructuring assets;
Tax Planning: Some may explore ownership transfers for tax planning purposes, to make sure they or their loved ones don’t pay more than necessary.
There’s no one size fits all reason why someone may decide to change or transfer ownership of a property. However, it does happen, and it’s important that the transfer is done correctly to avoid any problems further down the line.
How to transfer ownership of a house with a mortgage
Transferring ownership of a house with a mortgage in the UK involves several steps. Here is a general guide:
Review the mortgage terms
Before moving forwards, it’s important to review the terms of the existing mortgage. Some mortgages may have clauses that affect the transfer of ownership to fully understand any potential implications.
Contact the mortgage lender
Once you're clear on the mortgage terms, you should notify the mortgage lender about your intention to transfer ownership. They will provide you with information on the specific steps you need to take.
Eligibility check for the new owner
If the new owner intends to take over the mortgage, they will need to undergo an eligibility check to the lender. This may include a credit check and an affordability assessment to ensure they can manage the mortgage repayments.
Get a property valuation
In some cases, the lender may also require a property valuation to determine its current market value.
Prepare the legal documentation
This may include a transfer deed (known as a transfer of title), which legally transfers ownership, and a new mortgage agreement.
A property solicitor can help with this to guide you through the process and ensure all documentation is correctly prepared.
Completion and registration
Once all legal requirements are met, the transfer can be completed. The owner’s details should also be updated with the Land Registry, along with the mortgage lender formally acknowledging the change in ownership.
Do you have to pay stamp duty when you transfer a property with a mortgage?
Yes, in the UK, stamp duty is generally payable when transferring a property if there is a mortgage involved. The amount of stamp duty required depends on various factors, including the value of the property and whether the transfer is part of a larger transaction.
That being said, if the transfer is between spouses or civil partners in connection with a divorce or dissolution, there may be exemption or relief available.
When considering the transfer of property with a mortgage, it is advisable to consult with a qualified solicitor or tax professional who can provide personalised advice around the circumstances of the transfer and ensure compliance with current stamp duty requirements.
Remortgaging and transferring ownership
Some people find it necessary to remortgage their property when approaching a transfer of ownership. If the person who you are transferring to fails the lender’s eligibility checks then remortgaging may be necessary in order to pay off the mortgage before the transfer is possible.
You may also determine that your mortgage is not right for you when weighing up a transfer of ownership. If this is the case and your research shows you that you can get on a better rate, then you may decide to remortgage your property before transferring the ownership.
Restrictions on transferring ownership of a property with a mortgage
There are other reasons that can cause a transfer of ownership to fall apart. Besides failing an eligibility check, the potential new owner can’t go ahead with the transfer if:
The property is buy-to-let and the new owner wants to live there;
If someone that was previously on the mortgage continues to live there;
If the mortgage will have three or more people involved.
It’s worth checking your lender’s restrictions as soon as possible to make sure you have all the facts about a transfer of ownership with a mortgage.
Tenants in common
If you own a property alongside other people, you are tenants in common. If you want to transfer ownership to another part owner, the process can be more complex.
If the remaining owner does not pay anything to the owner that is transferring power, they will have to sign a ‘Statutory Declaration as to Equitable Title’. This states that they are the sole owner of the property and therefore, the only person entitled to the equity on the property. As such, they will also need to be the only person on the mortgage.
Get help from Lawhive with transfer of ownership with a mortgage
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