Post-Completion Matters - Transfers of Equity Flashcards
Transfer of Equity occurs when:
Borrower is added or removed from mortgage contract
Status
Financial circumstances of remaining borrower on RMC needs to be assessed.
In case of divorces = remaining borrower may have maintenance payments = affect affordability
Where status of remaining borrower is impaired, loan may not meet criteria acceptable for mortgage indemnity cover.
New Occupier
Lender will need to establish whether person moving in are to be put on the mortgage contract or not
If they are - normal status enquiries carried out
If not - necessary for occupier’s consent / consent to mortgage form to be completed - without this the occupier could enjoy a right of residence which overrides the mortgage.
Track Record
If borrowing is new - track record will be less value to lender.
Lender needs to understand which borrower has been paying the mortgage and whether they are being removed from the contract.
Guarantee
Any proposed changes to T&Cs must be sanctioned by any guarantor.
Life Assurance Policies
If a life assurance policy was in place to repay the loan, such as an endowment policy, this may need to be amended if a party is to be removed from the mortgage contract.
Any variation in the terms of the policy will also need the involvement of the lender, if the policy has been assigned to them.
If the policy is not assigned, it should be transferred or assigned to one or other of the policyholders - as part of any agreed settlement.
If the person leaving the mortgage has a repayment vehicle such as an ISA, this now creates a shortfall and will need to be addressed by the remaining parties.
Value of the property
Borrower’s ability to pay and loan-to-value will be two important factors in lender’s assessment.
Current value of property may need to be assessed and a revaluation may need to be carried out.
Cost and methods
Borrower will have to pay a fee to transfer equity
Transfer will be by deed for which a solicitor will be involved
Stamp Duty Land Tax SDLT
May be a charge to SDLT where sole owner transfers ownership into joint names in following circumstances:
- Marriage
- Entering civil partnership
- Setting up home with someone
Charge will arise if transfer is made in exchange for a consideration - cash payment and/or assumption of liability to pay the mortgage.
Example of SDLT Due on Transfer of Equity
Sue owns her own home, worth £500k and has a mortgage of £200k.
She is planning on marrying Roy next year and wants to transfer the property into their joint names. Roy agreed to pay Sue a cash sum of half the equity in the property.
SDLT =
Cash settlement of £150k (50% of equity of £300k) is added to 50% of mortgage (£100k) - total of £250k
Figure is above SDLT threshold - SDLT payable.
Would pay SDLT on £250k:
£125,000 = 0%
£125,000 @ 2% = £2,500 SDLT payable by ROY.
Removing a joint owner - when is SDLT due?
A charge to SDLT may arise when joint owners separate and property transferred into one name
Transfer will be SDLT exempt when = divorce/judicial separation/dissolution of a civil partnership
A charge of SDLT may arise in all other situations based on the consideration given in exchange for the transfer.
Example of removing a party - SDLT due
Andy and Nick bought a property together last year. Nick wishes to leave.
Property is valued at £225,000 with a joint mortgage of £155,000
Andy has agreed to pay Nick £35,000 for his share of the equity in the property and will take over the mortgage in his sole name.
SDLT calculated as=
Cash settlement of £35,000 plus 50% of mortgage (£77,500) = £112,500. This is BELOW SDLT threshold so no tax payable.
