There are any number of reasons why you might wish to change who has legal ownership of your home, without putting it on the market and selling up. Perhaps your partner is moving in and you’d like to own the property together, or you want to give your adult children some security through giving them a stake in your property. Whatever the reason, you’ll need to complete what’s known as a transfer of equity process.
What is equity?
Equity is a legal term that explains how much of a property you own. You can think of it as the value of the home minus any outstanding mortgage. So if your property were worth £280,000, and you had £150,000 left to pay off on your mortgage, your equity would be £130,000.
What is a transfer of equity?
A transfer of equity occurs when a property’s owner adds or removes a person (or people) to or from the title on the home, altering the ‘ownership’ of the property from a legal perspective. Despite what the name suggests, it doesn’t necessarily involve the transfer of any money.
A transfer of equity is most commonly applied when a couple marries and moves in together, or conversely, if they divorce and one party chooses to leave the home. In either situation, a transfer of equity allows for changing names on house deeds, to reflect the property’s new ownership situation. You can think of it as one person ‘buying out’ another’s share in a home, or ‘selling’ and splitting the shares they already have to allow another person to join them in ownership.
Of course, not all transfer of equity situations are so simple. In fact, a transfer of equity is required for any change of ownership where at least one of the original owners stays on the title. That means there could be more than two parties involved, such as in a scenario where someone is taken of the title and replaced by another in a single transfer.
In a transfer of equity where a party is leaving, the remaining party will need to ‘buy’ the other party out. In most cases, this will involve remortgaging with the existing lender or transferring the mortgage to a new provider altogether. The leaving party will then receive their share of any equity, with the lender financing this.
There’s also a form of transfer of equity known as a ‘gift’. This is a scenario where no money changes hands, such as a parent adding a child to their property title deeds and therefore giving them a share of ownership, without them having to pay or invest.
How do I go about a transfer of equity?
Because at least one party will remain in ownership, a transfer of title deeds is usually a much simpler process than a standard property sale or purchase. Nonetheless, there’s still a lot of legal work involved, which is why it’s strongly recommended you appoint a conveyancer to guide you through the process and help push your transfer through.
The backbone of the process is the land registry TR1 form, which will need to be completed. It outlines who the current owner(s) – the ‘transferor(s) – are, and who the new owner(s) – the ‘transferee(s)’ – will be. You’ll also need to have official copies of the property’s title with you, along with comprehensive contractual information regarding any mortgages.
If there isn’t a mortgage, things are fairly straightforward. All parties just need to sign the transfer deed (TR1 form) and file it with the land registry. This needs to be accompanied by the land registry’s AP1 form, and if the value of the transaction amounts to more than £40,000, then a stamp duty land tax certificate may also be required.
In a situation where there is a mortgage that will remain in place after the transfer, you’ll need consent from the lender first. If you’re adding someone to the property’s ownership and title then the mortgage lender will want them to become equally liable for the mortgage, and they’ll need to carry out their own checks to ensure the person(s) is/are suitable. They’ll then carry out a remortgage in most cases, following the same process as when the original mortgage was taken out. If someone is being removed from the title deeds, the outgoing person(s) will need to be absolved of their mortgage obligations, and the lender will want to be certain that the remaining party(s) are financially capable of repaying on the new mortgage after the outgoing person(s) have left. In both situations, your mortgage lender may refuse to give consent if they have concerns.
Transfer of equity: step by step
Step 1: Apply for a remortgage/new mortgage (if you need one). Because the property’s ownership is changing, affecting its equity, your mortgage provider will need to account for this. Speak to your provider or financial adviser about your options and if possible, agree a mortgage in principle.
Step 2: Instruct a conveyancer. If someone will be joining your title, both parties can be represented together. However, if someone is to leave, the parties will need to have separate legal representation. All parties will need to provide thorough identification. If the leaving party is to be paid, the conveyancer will have to confirm the source of funds to be used.
Step 3: Let your conveyancer take care of the legal work. As part of their fee, your conveyancer will confirm things with your mortgage provider (if required), as well as the property’s freeholder (if there is one). They’ll then send on the mortgage deed for you to sign.
Step 4: Complete. Your conveyancer will facilitate the transfer of any funds between parties. Outgoing parties will need to complete and sign an ID1 form, in the presence of their conveyancer.
Step 5: After-completion. Your conveyancer will calculate any stamp duty liable to HMRC and facilitate payment of it. They’ll also ensure details of the new ownership are logged with the land registry.
How much does it cost to change the name on house deeds?
How much a transfer of equity costs will vary hugely, based upon your circumstances.
First and foremost, you’ll have your conveyancing fees, which will be calculated on many factors; such as your property’s value or whether or not you need to re-mortgage. In most cases, the fees will amount to between £100 and £500 +VAT.
Your conveyancer may or may not include cover for additional charges within their service. Such charges include about £8 for online ID checks, £3 for a copy of the property’s Register of Title, and between £20 and £125 to register the change of ownership with the land registry – the latter depending on your property’s price bracket.
Your mortgage lender may also add their own fees, to cover their administrative costs involved with enacting the change.
But the largest cost involved is usually transfer of equity Stamp Duty Land Tax. Where a party is taking on equity or a mortgage worth more than £125,000 in total, then Stamp Duty Land Tax may need to be paid on it. The precise amount owed is calculated using bands. If a party is leaving the property’s title due to divorce, then no Stamp Duty Land Tax will be owed.
If you’re weighing up a transfer of equity and would like the advice of a conveyancer, contact our team on 0333 234 4396 today. If you require our services, you can receive an instant quote online >
Disclaimer: The article above is only a rough guide to give you some idea of what is involved in a transfer of equity.