What is a transfer of equity?

If you're transferring property from one owner to another, this is referred to as transfer of equity.

But what is transfer of equity and what does it involve? Let’s take a look.

What is equity?

Equity is a common legal term used in property law, specifically when talking about property ownership. Equity refers to the percentage of a property that you own outright: your property's value minus your outstanding mortgage.

For example, if your home has a value of £500,000 and your outstanding mortgage is £250,000, your equity would be £250,000.

When you co own a property, the equity is split between the two (or more) owners. So, if one owner wants to give up their ownership, they are legally entitled to their percentage of the equity.

What is a transfer of equity?

So, what is a transfer of equity? Transfer of equity when you transfer ownership of the property, either by adding or removing someone from the title deeds of a jointly owned property. The property isn't sold; at least one of the original owners has to stay the same.

Equity transfers can be fairly straightforward if all the parties involved agree with the property transfer. Unlike a property sale, there are no house searches required.

However, it is important to be thorough when transferring equity, especially if there are mortgages or disagreements between parties.

Why transfer equity?

Transfer of equity occurs for a number of reasons, including:

• If you marital status changes and you want to add your new partner to the title deeds.
• If you want to add someone like a family member to the title deeds.
• To remove someone from the title deeds like an ex-partner as part of divorce proceedings or the end of a civil partnership.
• For tax efficiency when gifting equity to children or other family members as a gift.
• To buy out the co owner's share of the property.
• To change the percentage shares owned by each party.

The transfer of equity process

When it comes to transfer of equity, you can't use the same solicitor as the person you co own the property with. Instead, you'll each need to seek legal advice independently from an experienced conveyancing solicitor. The legal process stipulates that each joint owner will need to have separate legal representation to ensure everyone gets independent, impartial advice.

Here are the stages of the transfer of equity process.

Stage one: review the title deeds.

Instruct your own solicitor to review the title deeds to prepare for the property transfer. They'll be able to check the if the equity transfer is being made by the current owner, as well as if there are any outstanding debts or mortgages attached to the property.

Stage two: prepare the transfer deed documents.

Once the title deeds have been reviewed, you'll need to prepare the transfer deed documents.

Stage three: meet with the parties involved.

Once the transfer deed is ready, you'll need to meet with each solicitor to sign them in the presence of a witness.

Stage four: notify your mortgage lender.

When it comes to transferring equity, you must get the written consent of any mortgage lenders, banks or building societies involved.

Similarly to your own initial mortgage application, your lender will want to run credit checks to ensure the new owner you're bringing onto the lease will also be able to afford the mortgage repayments.

On the other hand, if you're removing someone from the lease, your lender will want to know that the remaining owners will be able to make the monthly payments on their own.

Stage five: obtain a valuation.

You'll need to obtain a property valuation in order to work out the monetary value of the ownership share being transferred as part of the transfer of equity. This needs to be done so the right amount of money is given to the leaving party, for example as part of a financial settlement in a divorce.

You may be able to get a valuation with an estate agent, but sometimes a valuation from a chartered surveyor will be needed.

For a quick, instant property valuation, use our Online Valuation Tool here.

Stage six: register the transfer deed.

You'll then need to register the deed transfer at the Land Registry. You'll have to pay the Land Registry a fee anywhere between £50 to £920 depending on how much the property is worth. The Land Registry will update its records.

How long does transferring equity take?

Equity works pretty quickly if there's no mortgage involved. But if you do have to wait for consent from a mortgage lender, it could take several weeks to transfer equity (depending on your own situation and your mortgage lender).

Transfer of equity may also take longer if it's part of a wider financial arrangement like a divorce settlement.

Read here for more information about how long equity takes.

How much does transferring equity cost?

Transferring equity costs vary depending on how much the property is worth. For example, the land registry fees depend on the value of the property.

As well as the land registry fee, you'll have to think about solicitor fees.

Transferring equity with an existing mortgage

If you want to transfer equity with an existing mortgage, it can be a bit of a trickier process.

You can't leave the property deeds without paying back the debt you used to purchase the property in the first place. After all, your mortgage payments are part of a credit agreement you're obliged to uphold until you pay off the debt.

The person leaving the title deeds will also need to be released from the mortgage terms and conditions. That means no longer being liable for mortgage repayments.

As such, you'll need permission from your mortgage provider before the transfer of equity can take place.

There are a few ways you can do this, including:

Pay off your mortgage payments

This means paying off the mortgage with other resources.

Consent as part of a buyout

You may be able to get your mortgage lender's consent to transfer of equity as part of a property buyout. For example, the co owner might buy your share of the property.

Remortgage

You could also remortgage your property (this means getting a new mortgage with a with a new lender) in order to secure enough funds to pay off the existing mortgage repayments, as well as securing extra to buy out your joint owner. This may be preferable if you're going through a divorce or separation and you want a completely clean slate.

Transfer of equity as a gift

This is a less common process, but it may be used for tax efficiency purposes. The transfer of equity happens without any money changing hands, which makes it more tax efficient (for example, if parents transfer documents as part of gifting houses to their children).

Capital gains tax implications

There may be capital gains tax implications if you transfer equity for certain reasons. For example, if you're transferring ownership because of a Financial Remedy Order on divorce, and the property is the main home of both parties involved, you'll probably be exempt from capital gains tax.

But if the transfer of equity is to an adult (for example as a gift to a child) it might be treated as an exempt transfer of equity because of inheritance tax.

Equity and stamp duty land tax

You may also have to pay stamp duty (SDLT) in certain cases when it comes to transfer equity. For example, if you're buying out a co owner's share of the property, you'll have to pay SDLT.

If you're not sure about whether or not you have to pay SDLT, you should always seek professional advice to ensure you're making the right decision based on your individual circumstances.

If you want to go through transfer of equity into joint names (for example, if you're just married) you may also have to pay SDLT. Even though no money changes hands, you'll have to pay stamp duty because the new joint owner is taking on half of the mortgage debt (if you the monetary value of the property is above the threshold subject to stamp duty land tax).

Stamp duty land tax example

A property owner has a £300,000 mortgage on a property valued at £400,000. They get married and want to undergo an equity transfer with their new partner.

This means the new partner takes on half the mortgage, which is known as chargeable consideration. They'll be responsible for £150,000.

They must therefore pay stamp duty on that amount.

If the mortgage lender doesn't give consent

You must get written consent from your mortgage provider before you can transfer equity. However, they may want to change the mortgage conditions before consenting, and they might not offer any consent at all.

If that's the case, the only way to continue with the transfer of equity process would be to repay ther mortgage in full. And remember you may be charged a redemption fee for this.

Summary: A change of ownership arrangement

You should now have a better idea of what transfer of equity is, why it's used and what it involves.

One of the key elements with an equity transfer is knowing the value of your home. For an instant valuation use our Online Valuation Tool here.