Transfer of Equity for Residential Properties: The What, Why, How and Who
The transfer of equity is when one co-owner of a property moves the ownership to the other. This occurs when divorce happens between partners and the decision is made, either between the two parties or the courts, to transfer full ownership of the property to an individual. It is also possible to transfer equity in the case of marriage, where the current owner looks to add their spouse’s name to the deed.
What to Know
The transfer of equity is undertaken through a conveyancer. The equity is determined by the remaining cost of the property once any already-paid mortgage fees have been deducted. As an example, if the property was purchased for £150,000 and you have already contributed £50,000 in mortgage payments, then the remaining equity is £100,000.
If the two parties are unable to come to an agreement regarding the release of ownership, then they may be required by the courts to sell the property outright and relinquish their ownership. This is known as a partition lawsuit and results in the sale of the property with its proceeds being split between the owners.
How to Do It
Individuals looking to transfer equity can complete the procedure by contacting a solicitor or can undertake the proceedings independently.
To begin the transfer of equity, your solicitor must issue a Transfer (TR1) and other documents to the other parties or their solicitors. When this is returned, you will be asked to sign the form yourself and return to your solicitor.
Once submitted, they will begin a review and be able to inform you about the potential date of completion. If there are any outstanding issues associated with the transfer, this could take longer than normal.
What Does it Cost?
The costs for equity transfer vary between companies, but the average cost is £125 – £150 plus VAT. There is the opportunity to transfer equity without payment and this is constituted as a gift transfer, such as adding a child to the ownership contract.
Who is Involved?
Those involved in a transfer of equity usually consists of two people, but it can be as many as four. In cases involving newlyweds, it might be that one spouse owns a home outright and wants to include their new partner’s name onto the deed, making it a property with joint ownership. This is considered a 1 – 2 transfer.
Regarding divorce -related transfers, known as a 2 – 1 transfer, the party who has chosen to be the one to vacate the property
Other cases involved ex-spouses transferring their equity to the new spouse of their former partner. This is considered a 2 – 2 transfer and will remove the ex’s name from the deed and replace it with the new partner.
In some cases, the mortgage lender may request that the outgoing individual works with a solicitor, however, this is not necessary. Outgoing owners can elect to hire their own solicitor if they so desire, but this would result in further costs for services. The only person who must have legal representation is the person who wishes to remain on the deed.
Is it Simple?
The process of transferring equity is relatively straightforward as long as both parties are in agreement about what will happen. There are however occasions that might slow down the process or even halt proceedings altogether.
Instances such as this occur when the lender is unsure about whether or not the individual that remains on the contract will have the ability to sufficiently pay back the original mortgage. For couples who repaid their mortgage through their shared income, this can pose a problem when one looks to release their ownership rights.
It might also happen that lending firm will request to take out another non-refundable mortgage valuation of the property. This is done to ensure that the property is still worth a similar amount as it did when the mortgage agreement was first signed.
Furthermore, there may be a requirement of Stamp Duty if the property cost more than £125,00 depending on the terms of the transfer. This can be discussed with your solicitor during the process.
In the Know
Understanding your rights as a homeowner looking to transfer equity is something that will prove highly beneficial should the situation occur. It will hopefully make the transfer more straightforward and eliminate friction or misunderstandings between parties.