Transfer of Equity refers to the change in the co-ownership status of a property. Transferring shares can happen for any number of reasons. For instance, when an individual invites their partner to move into their property, they may also complete a transfer of equity. Parents may offer their older children a transfer of equity to provide them financial support. Removing an ex-partner from the property deeds is also considered a transfer of equity.
Overall, transfer of equity is a legal process that changes the proportion of the property that you own. It is important to understand what equity is, as well as the legal and financial implications.
What is Equity?
The equity you own in a property is the difference between what your home is worth and how much you still owe on it. This means if you purchased a £250,000 and have £130,000 yet to pay, your equity in the property is £120,000.
When you perform a transfer of equity, this can only be done on the equity you already own. For example, if you decide to transfer half the equity in your home to a long term partner, you can only transfer half of £120,000 rather than the £250,000 that your home is worth.
What is a Transfer of Equity?
There can be lots of different reasons that a transfer of equity occurs between parties. For example:
- Transferring ownership to a new partner, relative or friend who has moved in with you.
- Transferring ownership to one party when a divorce has occurred.
- Changing ownership to one party in the event of death.
- Transferring ownership to one party when a property has been gifted to an individual.
If you are involved in any of these circumstances it is a good idea to understand how a transfer of equity works. When you perform a transfer of equity, you are changing the proportion of the property your name appears on. This occurs by adding or removing a name to the title deed for your property. There are plenty of circumstances that call for a transfer of equity, some of them already mentioned with this article.
Despite the implications of the transaction, the process doesn’t necessarily involve a transfer of any money. Instead, transfer of equity generally implies that the ownership status of a property has changed and the existing equity has been split between two parties.
In the case where an individual leaves the title deeds, this may require a ‘buy out.’ This often occurs when one member of a divorced or separated couple leaves the property. The house may be re-mortgaged by the same lender or an entirely new one. The equity owned by the departing individual can be claimed, whilst the remaining party takes on the property and mortgage payments independently.
How Does a Transfer of Equity Occur?
Transfer of equity is a far simpler process than purchasing or selling a property. This is because at least one party remains in ownership of the property. The deeds won’t have to be transferred to a new owner, which calls for further legal work. Despite this, there is a still a considerable number of legal processes that need to occur. It is vital that these tasks are completed by a trained and experienced solicitor. Therefore, it is strongly advised that you request the services of a licensed conveyancing solicitor to complete your transfer of equity.
The TR1 form is a key component of the process for a transfer of equity. This form will gather information regarding the current owners and who the equity is being transferred to. You will also require official copies of the properties title deed, as well as the mortgage contract. This information is required so your solicitor can ensure an official change of the deeds occurs.
Transfer of Equity without a Mortgage
The process can vary depending on whether or not there is a mortgage associated with the property. If there is no mortgage, a transfer of equity is fairly simple. All parties involved in the transfer must sign the TR1 form. This is then provided to the land registry along with an AP1 form. This additional form notifies the land registry of your request to change the ownership of the land. Additionally, consider that if the value of the transfer of equity is more than £40,000, a stamp duty land tax certificate may be required.
Transfer of Equity with a Mortgage
If the full amount of a mortgage is yet to be paid on a property, transfer of equity is somewhat more complicated. This is because the lender also needs to be involved within the transaction.
In addition to the actions mentioned above, the consent of the lender is required to perform a transfer of equity . If an additional individual is being added to the title deeds of the property, they are also liable for payment of the mortgage. The lender will therefore want to ensure the individual is suitable. If approved, a re-mortgage will likely occur, now including the title of the additional person. Alternatively, if an individual is being removed from the title deeds, this leaves the remaining person liable for the mortgage payments. The lender will therefore need to assess whether or not this person is able to afford this. If the mortgage lender has concerns in either case, they can deny consent and prevent the transfer of equity.
How Much does it Cost?
The cost of this process will vary widely, depending on your circumstances.
Conveyancing fees will vary between providers, as well as the specific circumstances surrounding your transfer of equity. Your properties value and whether you’ll need to re-mortgage will have the largest influence in driving the cost. There may also be individual costs throughout the process. This may include online ID checks, which cost £8. Requesting a copy of the Title Register is £3. It may cost between £20 and £125, depending on your property value, to register a change of ownership at Land Registry. In most circumstances, you will likely be looking at a cost between £100 and £500 +VAT. However, there may be additional fees such as administrative costs, directly from the solicitor.
If applicable, the largest cost you are likely to face is stamp duty land tax. Transfer of equity stamp duty land tax must be paid when an individual is being transferred equity that is worth more than £125,000. The amount to be paid is calculated using bands, based on the total amount of equity you receive.
What are the Legal Implications?
The legal implications of transferring share in your home depends on why you are changing how it is owned. For example, if you are transferring part ownership to your partner because you have married or entered into a civil partnership with them then this will be classed as ‘gift.’ This means that they will not need to pay capital gains tax when they eventually sell their share in the property. However, there may be other implications such as joint ownership. This would mean that neither of you can sell the property without permission of the other.
Final Thoughts
A transfer of equity allows for the addition or removal of an individual to your title deeds. This can be thought of as ‘splitting your shares’ with another individual. Or, being ‘bought out’ if a party leaves the deeds. The process gives you control over the ownership of your property and the equity you keep within it.
Whilst the process can appear fairly complicated, it can be made simple with the assistance of a qualified conveyancing solicitor. Moving Sorted are proud partners of a network of conveyancing solicitors situated across the UK. We are able to offer convenient and efficient services. Complete a transfer of equity with no trouble at all by working with Moving Sorted.
