Transfer of Equity Process

13/10/2017
Many expect the transfer of equity process to be fairly straightforward; especially if it is just an owner of a property wanting to release their equity to a joint owner or a new owner.

This can be the case when there isn't a mortgage lender and this is why there are many transfer of equity DIY kits online. The challenge however is where there is a mortgage registered on the property because you'll need the mortgage lender's authority to proceed and the help of a solicitor to complete the legal work.

In most cases a transfer of equity will be a partner being added to the property, or one being removed after a separation. Parents are also now looking to transfer the equity of their property to their children as part of their inheritance tax planning (read more on this here: 4 Ways to Gift Your Property).

If you do transfer the equity of the property then the new owners need to decide if they hold the property as tenants in common (owning in separate shares) or as joint owners (the property is owned 100% together - normally only for married couples).

The following is a step-by-step guide which explains the process of what you need to do, the transfer of equity costs (including the solicitor costs) and the average time it takes for the process to complete.

Click to see our handy diagram which explains the whole transfer of equity process or simply scroll down the article.

We specialise in all aspects of the transfer of equity process including:
  • Completing legal work for transfer of equity (see below)
  • Drafting a deed of trust
  • Handling the remortgage
*Fixed Fee – Experienced Solicitors – On all Major Lender Panels

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What do you need to do first?

Before the conveyancing can get underway you need to first agree the consideration to be paid to the party leaving (selling their share). This can be gifted, however if it is gifted and you die within 7 years of passing on the gift, then the gift could be made to form part of your probate calculations. If there is consideration paid for the equity, then there could be stamp duty liable to HMRC (we explain how stamp duty is calculated at the end of the article).

If you have a mortgage you need to seek the consent of the mortgage lender. Mortgage lenders will require you to confirm who the new legal owners are, will want to complete their due diligence and may also want to be a part of the transfer.

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The majority of transfer of equity transactions are completed alongside a remortgage of the property. The process for remortgaging is the same as when you purchased and the new legal owners need to pass through eligibility and affordability checks to get your mortgage in principle. You will then need to value the property with a mortgage valuation and then finally you'll receive a mortgage offer if the mortgage lender is satisfied.

We have mortgage brokers who have access to the whole of the market. Book an online mortgage appointment here or call 0333 344 3234.

Is it a sale and purchase or a transfer of equity?
If one of the joint owners remains on the title, then the transaction is a transfer of equity. If all joint owners are removed and new owners replace them, then this is a sale and purchase.

For Example: Mum and Dad want to transfer their equity to their children, Michael and Jane. On completion Michael and Jane will be the only joint owners. In this example this is a sale and purchase and not a transfer of equity.

For Example: Mum and Dad want to transfer their equity to their children, Michael and Jane. On completion Mum, Michael and Jane will be the only joint owners. In this example this is a transfer of equity where Dad has transferred his share of the property to Michael and Jane. Mum, Michael and Jane will need to have a will and to draw up a Basic Deed of Trust. We have qualified solicitors to help you draft these, so please call 0333 344 3234 for a competitive quote.

What is the transfer of equity legal process?


    1
    Instruct your solicitor
Your solicitor will need to prove who you are through their ID checks - this will include anyone who is currently listed as a legal owner and anyone else who is going to become a legal owner of the property.

"The person leaving the title cannot be represented by the same solicitor handling the transfer of equity. They will need to seek separate independent legal advice, however they can choose not to if they wish to do so"


The ID required for the registered owners is different from the owners who are leaving the property. For the registered owners most solicitors will require 1 form of photo ID and 2 forms to prove your address; both are then checked through an online checking system which costs £8 per name (read this article on What ID does my conveyancing solicitor need).

For the party leaving the property, they will need to complete an ID1 form and have this witnessed. The witnesses can only be a solicitor, licensed conveyancer, notary public, barrister, CILEx Conveyancing Practitioner, Chartered Legal Executive Conveyancing Practitioner, Chartered Legal Executive, lawyer outside the UK, officer of the UK armed forces operating overseas or an employee at a Land Registry Office.

"The ID1 form must be registered within 3 months of being signed - so don't sign it until you are near completion"



If you are paying consideration to the leaving owner, then your solicitor will need to confirm the source of the funds you are using (read this article on How to prove source of funds)

The TR1 form is sent to the new registered owners and the leaving owners for signing.

    2
    Official Copies of the Register of Title and copy lease (if leasehold)
The Official Copy of the Register of Title are obtained from the Land Registry at a cost of £3 per title. The Official Copies state who the current legal owners of the property are, what restrictions are on the title and what charges are registered.

If you are getting a mortgage then review the Remortgage Process Explained article about the additional work required.

    3
    Mortgage consent or mortgage offer
As highlighted above, getting the consent from your existing mortgage lender if you are paying off a mortgage should be the first thing you do during the transfer of equity process. Without the consent from your mortgage lender your solicitor will not be able to progress your transaction.

If you are getting a new mortgage then your mortgage lender issues their mortgage offer to your solicitor. Different mortgage lenders will have different requirements for their solicitor to adhere to. Whereas some won't ask the solicitor to do anything more than their obligations under the CML, some mortgage lenders request additional information to be provided to them before they will agree for the mortgage to be issued. For example, Paragon Mortgages require the solicitor to provide copies of planning permission, building regulations and rights of way, however Santander Plc doesn't require this.

If there is an existing charge registered on the property, then the solicitor requests for the mortgage lender to provide a current mortgage statement in order to discharge the balance on completion.

If you are getting a mortgage then review the Remortgage Process Explained article about the additional work required.

    4
    Order local authority search or indemnity insurance (mortgage only)
Local-Authority-Search-Indemnity-Insurance.png
Different mortgage lenders have different criteria with regards to the local authority search. Some mortgage lenders are happy for you to take out local authority search indemnity insurance, some will not and expect you to obtain either an official local authority search or a personal regulated local authority search (read to find out the difference between official and personal).

This effects you both in the cost and in the time it takes to obtain the desired information. For local authority search indemnity insurance the policy is usually issued within minutes and the costs are as stated in the table to the right.

The cost of a regulated local authority search is can be as low as £135, however the cost of an official local authority search obtained direct from the council can range from £60 up to £300.

There are also some mortgage lenders who require you to provide environmental searches, chancel indemnity and water and drainage searches.


    5
    Pre-Completion checks
The solicitor will take out an OS1 priority search to freeze the title of the property from being able to have any changes applied to it and then complete a bankruptcy search on you. The OS1 costs £3 per title and the bankruptcy search costs £2 per legal owner searched.

The solicitor will be in a position to complete once they are in receipt of:

Transfer with a mortgage Transfer without a mortgage
TickID documents & ID1 form

TickID documents & ID1 form

TickMortgage offer

TickMortgage lender consent
 
TickSatisfactory title checks for mortgage purposes (mortgage only)

TickThe registered owners signed instruction to complete

TickThe registered owners signed instruction to complete

TickProof of funds for consideration

TickProof of funds for consideration

If there is a mortgage they will then send off the certificate of title to the mortgage lender requesting the release of the mortgage funds in time for completion.

Owning as tenants in common?
If you and your new registered legal owners hold the property as tenants in common, then you will need to have drafted a will and a basic deed of trust. As tenants in common, your estate benefits from any share you own in the property and in the event of your death you will decides who benefits from this.

A basic deed of trust will set out your share of the property so that when you sell or transfer your equity in the future, then your share of any gain or loss is clearly stated within a legal agreement.

    6
    Completion & Transfer of Equity Costs
The solicitor sends you a financial statement before completion detailing the transfer of equity costs and disbursements. This is an example of costs statement for a transfer of equity with an existing mortgage of £200,000 and £50,000 consideration:
Land-Registry-Registration-Fees.png

Cost £ Description
£250,000

Mortgage advance from new lender

Less:
£200,000

Mortgage to redeem

£50,000

Balance due to leaving owner

£500

Stamp duty (read more below; click to use our stamp duty calculator)
£399

Solicitors' Legal Fee Incl. VAT (this varies depending on the property value, if the property is leasehold and if there is a remortgage)

£40

Land Registry

£30

Local Authority Search Indemnity Insurance

£8

Online ID check

£6

Official Copy and title plan

£10

OS1 & Bankruptcy

£993* Balance to be paid to complete

* Leasehold financial statements would need to include a notice fee payable to the freeholder to confirm change of ownership and any new mortgage.

Once your transfer of equity mortgage advance is received by your solicitor and you and your solicitor are ready to complete, then your solicitor will redeem your existing mortgage, pay the consideration due to the leaving owner, settle their invoice and any disbursements (online ID check, official copy costs and OS1/bankruptcy). The balance, if any, is then repaid to you. The only amounts left will relate to the Land Registry fees and any costs due to the property being a leasehold.

    7
    Post completion
The process for discharging the old mortgage and registering the new mortgage/owners at the Land Registry can take between 1 to 6 months after completion. The time delay is linked to the Land Registry having a backlog of work. This can be extended further for leasehold properties if the freeholder/managing agent delays in releasing the notice. Delays can be worsened if your service charge and/or ground rent are in arrears so make sure that you have settled these prior to remortgaging otherwise you may have a stand-off with your freeholder not releasing your notice until your service charge account is settled (read more about What happens after completion).

What stamp duty is payable on a transfer of equity?

A transaction is exempt from stamp duty when a couple divorce, separate or end their civil partnership, and either they:

  • agree to split their property and land between them; or
  • split the property under the terms of a court order.

In all other cases, stamp duty is payable on the total consideration being paid. To work out the total consideration you add the consideration being paid for the equity and the new owner’s share of the mortgage debt at completion. If the total consideration exceeds the stamp duty threshold, then stamp duty is payable at the prevailing rate including the additional 3% rate if any of the parties own a second home.

The payment (consideration) can take the form of cash, the giving of goods (giving a personal possession in exchange for the land/property), providing works or services (giving work or a service in exchange for the land or property), release from a debt, transfer of a debt, including the balance of an outstanding mortgage.

For example, Jane owns a property and wants to add on her two sisters. The sisters are not paying and consideration. The mortgage on completion is £300,000 and no one owns a beneficial interest in any other property.

Type of consideration Amount of consideration
Consideration paid for equity

£0

Debt/mortgage on completion £300,000 / 3 owners = £100,000

£100,000 * 2 new owners = £200,000

Total consideration used for stamp duty land tax calculation

£200,000



For Example, John and Mary are not married and decide to separate. They own a £350,000 house with a £250,000 mortgage. John is going to buy Mary's 50% share in the property. As John isn't married to Mary, and half the mortgage (£250,000 / 2 = £125,000) added onto the consideration of £50,000 equals £175,000, then stamp duty is payable.

Type of consideration Amount of consideration
Consideration paid for equity

£50,000

Debt/mortgage on completion £250,000 / 2 owners = £125,000

£125,000 * 1 new owner = £125,000

Total consideration used for stamp duty land tax calculation

£175,000



You should call HMRC for help with Stamp Duty Land Tax queries and to confirm your own personal liability on 0300 200 3510 Opening times: 8.30am to 5pm, Monday to Friday (closed weekends).

Transfer of Equity Process Diagram showing graphically people coming on an off the legal property title and what is involved

* Fixed Legal Fees – Experienced Solicitors – On all Major Lender Panels


 

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