What is a Transfer of Equity in Property?James Trafford
The transfer of equity in property involves when you may want to add or remove someone from the co-ownership of a property, and this is achieved by making the relevant changes to the deeds of the property. When this is done, it will change the legal ownership of the property by reflecting the new ownership status.
You can buy out an ex-partner, add your spouse to your property’s deeds, adjust the percentage share owned by the co-owners of a jointly owned property, or switch property ownership from joint to single ownership by arranging a transfer of equity in your property. Divorce and marriage often result in the need to change the names on real estate documents.
Transferring ownership of a property is distinct from selling a property, since at least one original owner will remain.
What is meant by equity?
Equity is the value you own in a property that is greater than what you owe on it with a mortgage. If you own less than what you owe on the mortgage, you are then in negative equity. If you have debts secured on the property, then this will affect your equity share.
A simple illustration: if you have a home that is worth £250,000 and you still owe £100,000 on the mortgage, then your equity is £150,000. Any debts secured on the home will change this to reflect what they are.
What are the reasons for a transfer of equity?
Naturally, there are many reasons why someone would want a transfer of equity in a property, and here are the salient ones.
- When someone finds a new partner or spouse, they may want them to have a financial interest in the property.
- When couples split, the likelihood is that this will result in a commensurate split in their finances too. Some may, however, carry on with the same equity share for various reasons.
- Sometimes, friends and relatives will buy property together as an investment opportunity. One of the parties may want to sell their share of the equity and move on.
- A homeowner may wish to gift a portion or all of the ownership of their home, for reasons such as inheritance or taxation.
What is the process of transferring equity?
There are certain steps that will need to be taken to make sure the transfer of equity goes smoothly and all the legal aspects are covered appropriately.
Choose a solicitor
If you are adding a new partner to your title, you can have the same lawyer represent both parties. However, if the title deeds are being transferred to another person, such as an ex-partner, each party will require their own legal representation. Your appointed solicitor will require proof of identity before they can proceed on your behalf.
Check the title deeds
Your solicitor’s first job will be to obtain an official copy of the property title or the title deeds, which they can get from the Land Registry.
When a mortgage is involved
To transfer ownership of the property, you’ll need the permission of the current owner’s mortgage lender. The lender will want to do an affordability assessment if you add someone to the title since they will be held equally accountable for the mortgage if you do.
Mortgage lenders will want to make sure that you can afford the mortgage on your own if you are removing someone from the property deeds and becoming a single owner. At this stage, it has the option to modify the terms of the mortgage.
But what if your mortgage lender refuses to agree with your proposed transfer of equity? If this happens, you will have to repay the mortgage in full before being able to go ahead with the transfer. If you don’t have the cash to do this and pay outright, then you could consider remortgaging to a different lender with the new owners of the property.
What about if the property is leasehold?
If the property in question happens to be a leasehold, a copy of the lease must be obtained by your lawyer as well. In order to transfer ownership, your lawyer will have to get the freeholder’s permission, which might cost money.
TR1 form completion
In order to transfer legal ownership of a property from one person or parties to another, a TR1 form from the Land Registry must be completed. Filling out the paperwork will be done by your lawyer, who will list the transferor (current owners) and transferee (new owners).
The TR1 form must be signed by both parties in front of a witness and submitted to the Land Registry by your solicitor.
Your lawyer will arrange for the transfer of funds between the parties after the transaction is concluded. To verify their identification, the departing party must fill out and sign a Land Registry ID1 form in the company of their solicitor.
Your lawyer will then submit the necessary paperwork to the Land Registry on your behalf. Depending on the valuation of the property, a charge ranging from £40 to £910 will need to be paid.