RESIDENTIAL Services
Transfer of Equity
What is a transfer of equity?
A ‘transfer of equity’ is a legal process where an existing owner of a property adds or removes one or more other people to the ownership (registered title) of the property.
Examples include:
- Where a couple transfer ownership from their joint names into the sole name of one of them, which commonly happens when two co-owners separate or divorce and one buys the other’s share of the property or the court orders the transfer if the property into the name of one party as part of the divorce settlement.
- Where Mr Smith wants to add his wife to be a co-owner of the property with him
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What is equity?List Item 1
For a homeowner, ‘equity’ is the value of their property minus the amount of any mortgage outstanding.
So, if Mr and Mrs Smith own a house worth £200,000 and have an outstanding mortgage of £75,000, they would each own £62,500 worth of equity.
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What if there is a mortgage on the property?List Item 2
If the property is subject to an outstanding mortgage, the lender’s consent may be needed before a transfer of equity is made.
The owners of the property should take financial advice on the best approach for their specific circumstances.
If owners proceed with a transfer of equity without first checking with their lender, they may breach the terms and conditions of their mortgage. In the worst-case scenario this might mean the lender demands immediate full payment of all outstanding monies due under the mortgage – i.e., full payment of the total amount borrowed plus interest and costs minus any payments that have been made.
If there an existing mortgage in place and you intend to pay it off in full before the equity is transferred, there is no need to tell your mortgage lender.
Common reasons for a transfer of equity:
- Selling your share in a property
- Separating from a partner or spouse
- Divorce – the court making a financial order
- Adding a new partner or spouse to the registered title
- Gifting a property (or a share in a property) to an adult child or other family member
An important consideration when adding someone to the registered title
If you want to add someone to the registered title of your property you need to decide how the property is to be owned. There are two options.
But first it is important to understand that, in English law, ownership of property consists of two elements:
- Legal ownership; and
- Beneficial ownership.
In England and Wales only up to four people can be the legal owners and they can only hold the legal ownership as “joint tenants” (see further below).
There are two ways in which the beneficial co-owners can hold the beneficial interest in the property:
- As joint tenants; or
- As tenants in common (see below)
The amount of equity that each co-owner will have in the property will depend on which type of beneficial ownership they choose.
So, what is the difference between joint tenants and tenants in common?
Under a joint tenancy each tenant has an indivisible share in the property and all the tenants are equally entitled to the whole property. For that reason, a joint tenant is described as taking everything or nothing, depending on whether or not they are the surviving owner.
First example
Mr and Mrs Smith own a property together and each contributed 50% towards the purchase price. They elect to hold the property as joint tenants. This means they will own the legal ownership as joint tenants (they have no choice!) and also hold the beneficial ownership as joint tenants.
If one of them dies, ownership of the property passes to the other under what is called the “right of survivorship”. That is simply a matter of law. No action is required to vest the property in the surviving co-owner, as they are already entitled to the whole of the property.
The deceased co-owner’s interest in the property cannot be inherited by the deceased’s heirs, as the deceased co-owner did not own a distinct share in the property. So, this means that if a joint tenant has made a will that purports to leave their interest in the property to a beneficiary, the disposition will be ineffective.
Second example
Mr and Mrs Smith own a property together. Mr Smith contributes 70% towards the purchase price and Mrs Smith contributes 30%. They elect to hold the property as tenants in common. This means they will own the legal ownership as joint tenants (they have no choice!) but hold the beneficial interest as tenants in common.
If co-owners hold the beneficial interest as tenants in common it means they each have a distinct beneficial share in the property. As such, they are often referred to as “undivided shares” because the owners cannot say which piece of the land they own.
As each tenant in common owns a distinct share of the property, each can transfer their share without the consent of the other.
Also, unlike a joint tenant, a tenant in common can also bequeath their share to another in a will.
So, the upshot of all this is that when considering a transfer of equity, your conveyancing solicitor will advise you on the most suitable joint ownership option for your individual circumstances.
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Legal steps for a transfer of equity (where the property is freehold)List Item 1
- Your solicitor will take your instructions, carry out ID checks, and obtain the title deeds or official copy register entries from the Land Registry.
- If anything is being paid for the equity, the solicitor will need to confirm the source of funds as part of the standard money laundering checks.
- The solicitor will prepare the legal documents for the transfer and arrange for them to be signed and witnessed in readiness for completion.
- On completion, the solicitor will date the transfer document and arrange for the correct apportionment of any funds and for those funds to be transferred to the relevant parties.
- The solicitor will apply to the Land Registry to register the transfer of ownership and, if payable, will submit an on-line Stamp Duty Land Tax Return to HMRC and pay the required duty.
- NOTE: If you intend to remortgage or apply for a new mortgage, you should speak to your lender or financial advisor at the outset of the transaction and obtain a Decision in Principle from the lender to confirm that they are happy with the proposed change in ownership.
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Legal steps for a transfer of equity (where the property is leasehold)List Item 2
When equity in a leasehold property is being transferred, the following additional steps will need to be completed:
- Your solicitor will need to check the provisions in your lease to see what it says about transferring ownership (known as “assignment”) and any formalities that may need to be complied with.
- The solicitor will check with your landlord to confirm whether a notice fee is payable to register the change of owner.
- Following completion, serve a ‘Notice of Assignment’ on the landlord which is a formal notice to the landlord of the change of ownership.
Please call us on 01263 800089 or 07940 585939 or email enquiries@ccclaw.co.uk if you would like us to assist you with the sale of your property
DISCLAIMER: The information and opinions expressed in this article does not address individual requirements and is for informational purposes only. It does not constitute any form of legal advice and should not be relied on or treated as a substitute for specific advice relevant to your particular circumstances.