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Can You Transfer a Mortgage to a Family Member?
It could be possible to transfer an existing mortgage to a family member, however, there are many things to consider before doing so. There are many reasons why someone might want to transfer their mortgage, such as wanting to move to a new property or struggling to keep up with repayments.
This process can be complex and may not always be possible. It's important to seek professional mortgage and legal advice before proceeding.
The legal process is known as a ‘transfer of equity’.
Many lenders' contractual mortgage agreements do not allow customers to transfer their mortgages. You'll also need to take into account whether or not the new owner would be able to qualify for the mortgage on their own, as this would likely be required by the lender.
Reasons to Transfer a Mortgage
There are a few reasons why someone might want to transfer an existing mortgage:
One reason is to help people get on the property ladder. If you have equity in your home and your family member can't afford a deposit for their own property, transferring the mortgage to them could be an option. This would enable them to use your equity as a deposit.
Perhaps the original borrower is facing financial difficulties and can no longer make the monthly mortgage payments, but the person you're transferring to is in a good financial position to do so.
Another reason might be that the borrower wants to move but doesn't want to sell their home, so they transfer the mortgage to the new owner who can then live in the property.
In some cases, a couple may get divorced and one spouse wants to keep the family home and same joint mortgage.
Inheritance tax planning is another reason why people transfer mortgages.
Whatever the reason, it's important to think carefully before embarking on the process as there are a few potential risks with mortgage transfers.
Mortgage Transfer Considerations
When looking to transfer your mortgage, there are a few things you'll need to consider:
Your Mortgage Lender's Policy- As mentioned above, you'll need to check with your lender to see if they allow mortgage transfers. If they don't, then you won't be able to go ahead with the process.
Your Mortgage Agreement- Even if your lender does allow mortgage transfers, there may be certain conditions attached that you'll need to be aware of. For example, they may only allow transfers to immediate family such as a spouse or child.
Your Equity- In order for a transfer of equity to take place, there must be sufficient equity in the property. This means that the outstanding mortgage balance mustn't exceed the current market value of the property.
The Family Member's Financial Position- The person who is looking to take over the mortgage will need to go through a credit check in order for the lender to assess whether or not they're a suitable candidate. They'll also need to prove that they have a steady income in order to make the monthly repayments.
Will the New Owner Pay Stamp Duty Land Tax?
When a property is sold, the new owner is usually liable for Stamp Duty.
However, there are some situations in which an exemption may apply. One of these is when the mortgage is being transferred from one joint owner to the other. This might happen, for example, if a couple gets divorced and one spouse wants to keep the family home. In this case, no Stamp Duty will be payable as long as the mortgage is transferred to the other spouse.
If the mortgage is being transferred to a someone who is not a joint owner, this exemption will not apply and SDLT will usually be payable. The amount of tax due will depend on the value of the property and whether it's a residential or buy-to-let property.
You can use HM Revenue & Customs' SDLT calculator to work out how much tax would be payable.
Mortgage Transfer Risks
There are a few risks to be aware of if you're considering a mortgage transfer:
The first is that the mortgage lender may not allow it. Not all lenders will permit their customers to transfer mortgages, so it's important to check with your lender as early as possible.
Another risk is that, if the new owner doesn't have a good credit history or income, they may not be able to qualify for the mortgage on their own.
Another potential issue is that, if the property is sold at a later date, the person who took over the mortgage may have to pay capital gains tax on any profit they make. This is something that should be discussed with a financial advisor before proceeding.
Transferring a Share of a Joint Mortgage
If you have a joint mortgage with someone else and you want to transfer your share to a member of your family, this is generally possible.
You'll need to speak to your lender to get their permission and find out if there are any fees associated with the process. You'll also need to agree on a new repayment plan with the other borrower.
What Happens to a Joint mortgage During a Divorce?
If you're getting divorced and want to keep the family home and the same mortgage, you'll need to agree on what will happen to the mortgage with your ex-spouse.
You may be able to transfer the mortgage into your name only, or you may need to refinance the mortgage in order to remove your ex-spouse from the loan.
If you can't afford the mortgage on your own, you may need to sell the property and use the proceeds to settle the existing mortgage.
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Things to Consider Before Transferring a Mortgage
There are a few things to keep in mind before transferring a mortgage to a family member.
There may be legal fees associated with the transfer, for example, land registry fees to confirm the new property ownership. You'll need to factor these into your budget. You should speak to a solicitor to get legal advice on the transfer and make sure that the legal process is followed correctly.
The person you are transferring equity to will still need to get mortgage approval. This means they need to meet the mortgage lender's eligibility checks on the new mortgage, have sufficient income and pass credit checks to name a few. If the mortgage is for a buy-to-let property, there may also be tax implications to consider. You should speak to an accountant or financial advisor to get advice on this.
Depending on your existing mortgage deal, you could be liable for an early repayment fee. These can be a sizeable percentage of the mortgage balance, so it's important to check with your lender before proceeding.
Can you gift a mortgaged property?
It's important to note that you can't simply gift property with an existing mortgage to a family member. The mortgage will need to be paid off first, or transferred into the name of the new owner.
Adding Someone New to Your Existing Mortgage
If you want to add someone new to your mortgage changing it from a single mortgage to a joint mortgage, you can either approach your existing lender or consider remortgaging with a new lender.
Transferring Ownership To Someone with Bad Credit
If the person you want to transfer your mortgage to has bad credit, it may be difficult to get approval from the lender.
Speak to an Expert
At Teito, our team of expert mortgage advisors help people with all types of situations, including transferring a mortgage to a family member. We can help you understand your options and find the best solution for your individual circumstances.
Get in touch with us today to speak to one of our advisors.
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Last updated 16 September 2024