A Simple Guide to a Transfer of Equity
A transfer of equity is basically a change in the ownership of the equity within a property.
How do I work out the equity in my property? The remaining value of a property or business after taking into account any mortgage is defined as equity. Basically, equity is the actual value of your property to you, ie; if your property is worth £500,000 and you owe £325,000 on your mortgage you would have £175,000 equity in it.
Why would I perform a transfer of equity? A Transfer of Equity typical happens when a partnership breaks up and there is a property which is owned by both parties, such as when a married couple decide to divorce. In such a case one of the partners will leave the property and any interest that that have in the property is transferred to the other partner who remains in the property. Money doesn't have to change hands for this to happen.
A court order may be necessary if there is any disagreement in the financial proceedings following a divorce. This is essential to ensure a fair compromise for both parties involved.
Cases where there is just a mortgage on the property and thus no equity are dealt with by a mortgage lender. They will counsel the partner who intends to continue living in the property on whether the repayments are manageable once they are no longer part of a couple. It is at the company's discretion whether they are prepared to lend the person the money required. This method can be used if there is equity on the house when the existing partner needs to borrow more than the current mortgage and pay a share of the equity of the property to the partner who is leaving.
How does the transfer of equity process work? It is actually really easy to transfer ownership. Both parties sign a Transfer Deed. This must be witnessed. If there is an outstanding mortgage on the property the person who is transferring the ownership is released from obligation by the mortgage lender. The person taking on the property may need to obtain a second mortgage or re-mortgage. This would necessitate extra stages.
What happens after the transfer of equity process There are a few more steps which need to be carried out after a Transfer of Equity is completed. Often Stamp Duty needs to be paid. To do this the transfer deed is forwarded to the local Stamp Office where they decide if Stamp Duty is payable, to confirm the amount and notify the solicitors carrying out the conveyancing.
Once the Stamp Duty has been paid, the change in ownership of the property can be registered at the Land Registry. This is a lengthy process and can take several weeks. A registration fee is payable to the Land Registry for this. Once this is complete the deeds are then usually returned to the mortgage lender until the mortgage is paid off and then passed to the conveyancing solicitors. If there is no mortgage the deeds are returned directly to the conveyancing solicitors.
Richard Williams has worked in the financial industry for over 25 years gaining a well rounded knowledge of all things finance. An impartial writer, Richard has written many financial based articles.
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